Norcross & Ors v Georgallides (Estate of) [2015] EWHC 2405 (Comm)

Case No 2013-1313

[2015] EWHC 2405 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 14/08/2015

Before

MR JUSTICE ANDREW SMITH

Between

Michael Norcross and othersClaimants

The Estate of Christos Georgallides deceasedDefendants

Philip Coppel QC (instructed by Thomas Cooper LLP) for 4 th Claimant

David Lord QC and Hugh Miall (instructed by Quastel Midgeon LLP) for Defendants

Hearing Hearing dates: 3, 4, 8, 9 and 10 June 2015

Judgment

[1]The matters that I have to decide in these proceedings arise from allegations that Mr Christos Georgallides, who died on 20 December 2013 and whose personal representatives (the “Estate”) are the defendants, was in breach of his duties as a director of the fourth claimant, Sugar Hut Brentwood Limited (“SHBL”), and so SHBL is entitled to relief against the Estate. At the relevant time SHBL, which is now in liquidation, its liquidators being Mr John Dickinson and Mr Robin Davis, ran a night club in Brentwood, Essex called the “Sugar Hut” (the “Club”). In broad terms, Mr Philip Coppel QC, who represents SHBL, sought to contend that Mr Georgallides was in breach of his duties to, and acted in fraud of, SHBL in that: i) He was responsible for diverting takings of the Club to a company owned by him, Trigame Limited (the “Trigame” allegations). ii) He was responsible for diverting takings of the Club and funds of SHBL to bank accounts of Sugar Hut Trading (UK) Limited (“SHTL”), another company that he owned (the “SHTL” allegations). iii) He was responsible for having payments from SHBL’s account made for his own and his family’s personal expenditure (the “expenditure” allegations). iv) He misappropriated property of SHBL (the “misappropriation” allegations).

[2]As I shall explain, the Estate submitted that SHBL’s presently pleaded case does not permit it to pursue some of these allegations, and that its application for permission to amend to introduce new allegations should be largely refused. Further, Mr David Lord QC, who represents the Estate, advanced three lines of defence: i) That SHBL has not proved that Mr Georgallides was fraudulent or that he was in breach of duty so as to give rise to any liability for SHBL’s claims. ii) That the claims were settled by a Settlement Agreement made between, among others, SHBL and Mr Georgallides, and dated 16 October 2008. iii) That the claims are statute-barred under the Limitation Act, 1980 (the “1980 Act”).

[3]By an order dated 14 May 2015 Hamblen J dismissed many of the clams in the proceedings, including some by SHBL, and as a result SHBL was the only claimant which pursued claims at trial.

[4]The trial took place over 5 days from 3 June 2015. SHBL’s witnesses of fact were Mr Michael Norcross, Mr Gary Smith and Mr Dickinson. It also called expert evidence from a forensic accountant, Mr Fred Brown of Grant Thornton LLP. The Estate’s evidence was given by Ms Chantal Georgallides, Mr Georgallides’ widow and one of his personal representatives, and Mr Jim Nicolaides of Alpha Omega Group Limited (“AOG”), who were accountants to Mr Georgallides and his companies.

[5]I did not consider Mr Norcross a satisfactory witness: SHBL relied on two witness statements that he made. The first was dated 26 February 2015, and the second, dated 22 May 2015, was made after Hamblen J had by his order of 14 May 2015 given the parties permission to file further evidence about “the issue of limitation”. Mr Norcross verified his witness statements in his evidence in chief, but it became clear in cross-examination that he was not familiar with what they said and they did not give his own recollection of events. He said that he did not draft them (or at least his first statement), and when he read them he had not “picked up” everything in them. I conclude that the statements were constructed from documents that are in evidence and that Mr Norcross had little, if any, memory of what happened that added anything significant to the documents. In cross-examination he sought to give a picture that he did not understand financial matters that I found unconvincing: he is shrewder and has more business acumen than he suggested. That said, I do not think that Mr Norcross was dishonest in his evidence, but I do not consider his evidence reliable except where it is uncontroversial or simply reflects contemporaneous documents.

[6]Mr Smith managed the Club from September 2004 until June 2008. He left SHBL’s employment as a result of a disagreement with Mr Georgallides: he said that Mr Georgallides had broken a promise that he would “get a percentage of Mr Norcross’s money when he came into the business”. Mr Smith was asked about correspondence that he had had after he had left with a Mr Thomas Vicario, who had also worked at the Club. In a letter of 18 September 2008, he suggested that Mr Vicario might contact friends in Thailand to “rubbish” Mr Georgallides there. I need not set out all the abuse of Mr Georgallides in Mr Vicario’s reply of 19 September 2008. He described Mr Georgallides as a “slippery character”, and said that he knew the “head of the Tourist Police” and that he might use that connection to “make [Mr Georgallides’] trip not so nice! I never get angry, I just get even”; and he wrote of creating trouble between Mr Georgallides and a “super crook”. Mr Smith gave an explanation that Mr Vicario was a very unhappy man who was just “sounding off”, but I do not accept that: the exchanges demonstrated extreme hostility to Mr Georgallides. I conclude that this and his disputes with Mr Georgallides influenced some of Mr Smith’s evidence. He was not, in my judgment, dishonest, but he was prone to exaggeration and was not reliable. For example, he said that the receipts of the Club in December 2007 were about £1 million: as Mr Brown’s evidence showed, they were only some £310,000. That said, however, Mr Smith’s evidence did give some useful insight into how the Club was operated.

[7]Mr Dickinson’s witness statement extended beyond admissible evidence of fact. He expressed his views about usual accounting practice, and offered his opinion that in some ways AOG had behaved as “no responsible firm of accountants” would have done. No permission was sought or given for Mr Dickinson to give expert evidence, and this was not properly included in his witness statement. In any case I do not consider these views useful, and I disregard them.

[8]Mr Lord criticised Mr Dickinson’s evidence on the basis that he was less detached than is appropriate for a liquidator of SHBL (and other companies). In particular, he gave evidence that documents that he had read during his investigation could be explained only on the basis that Mr Georgallides’ “modus operandi” for night club companies was to divert company funds, particularly cash takings, for his own purposes so that they were driven into insolvency and then to sell the assets of the insolvent companies. He referred to other companies that Mr Georgallides had owned: Southways Leisure Limited, First Continental Leisure Limited, Sugar Hut Limited and Buddha Bar of London Limited (“BBL”). The only possible relevance of this evidence was to suggest, by way of similar fact evidence, that Mr Georgallides had so operated the group that included SHBL. It became clear in cross-examination that Mr Dickinson had no proper basis to suggest that other companies had been run improperly, and he was driven to accept that he had “no evidence that funds were diverted from those companies”. I consider that Mr Lord’s criticism was justified.

[9]Mr Brown was properly qualified to give expert accounting evidence. His evidence was largely by way of an explanation of the book-keeping and accounting documents that had been disclosed, and collation of information in them. It was careful and impartial, and I am grateful to him. However, he was not instructed to examine SHBL’s expenditure, beyond collating payments that appear to have been for personal expenditure of Mr Georgallides or his family, and this limited the evidence that he could give.

[10]Mrs Georgallides was fiercely loyal to her late husband, but I regard her evidence as entirely honest. However, she was not able to give any evidence that was of any real importance to any of the issues that I have to decide.

[11]My assessment of Mr Nicolaides’ evidence is similar: he gave honest evidence, but it was really of peripheral relevance. I should state that it is not alleged that Mr Nicolaides or AOG behaved dishonesty or improperly in relation to the affairs of Mr Georgallides, his companies or the Group, and there would not have been a proper basis for such an allegation.

[12]Mr Coppel submitted that I should draw inferences adverse to the Estate because it did not adduce more evidence, in particular because it did not call as a witness a Ms Karen Lee, who had worked as a book-keeper at SHBL. The proper approach to a submission of this kind was explained by Brooke LJ in Wisniewski v Central Manchester Health Authority, [1998] Lloyd's LR Medical 223, where he set out these principles: "(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action. “(2) If a court is willing to draw such inferences they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness. “(3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue. “(4) If the reason for the witness's absence or silence satisfies the court then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified".

[13]As I shall explain, Ms Lee started to work for the Club in 2006 or early 2007 before Mr Norcross acquired an interest in it, she continued to do so when in November 2007 Mr Norcross joined Mr Georgallides on the board of SHBL, and she stayed on in October 2008 after Mr Norcross (or his company) acquired sole control. As I see it, either SHBL or the Estate could have called Ms Lee to give evidence: Mrs Georgallides’ evidence suggested that she is still living in Essex. Neither did so, and neither explained why it did not do so. I am not persuaded that I can properly draw any inference adverse to either party from the absence of Ms Lee as a witness.

[14]I should say something about the documentation that was available at trial, and the evidence about why some records were not available. Some of SHBL’s records and papers were lost in a fire that destroyed the Club premises in September 2009. The problems were aggravated because, although AOG had copies of the Group’s Sage data files, at about the end of May 2008 they suffered what Mr Nicolaides described as a “server breakdown”, and they lost substantial amounts of data. Their back-up procedures did not help because before the major breakdown the server had been crashing and not backing up records. After May 2008, AOG did not hold in its Sage system relevant accounting information about SHBL and its group. Mr Norcross also complained about the records made available when in October 2008 he, or more precisely his company, Newfund Investments Limited (“NIL”), acquired control of SHBL. Mr Coppel invited me to infer that documents were deliberately concealed or destroyed “by or at the direction of” Mr Georgallides. For reasons that I shall explain, I do not draw this inference with regard to any material documentation.

[15]The Club comprised a restaurant and various bar areas on two floors, and it was decorated with Thai ornaments and furnishings. In 2007 SHTL indirectly owned the Club and another club, also called the Sugar Hut, which was in Fulham, London (the “Fulham Club”). SHTL was in turn owned by BBL, which also owned Willow Leasing Limited (“Willow”), which owned the lease of the Club, and Ramos Leisure Limited (“Ramos”), which owned the lease of the Fulham Club. BBL was owned by Mr Georgallides. He also owned Chris George Intellectual Properties Limited (“CGIP”), which owned trademarks and other intellectual property associated with the businesses.

[16]Over the years Mr Georgallides had had a number of companies that were involved in what was referred to as the leisure industry. Apparently he and his wife were both directors of many of them, but Mrs Georgallides took no active part in running them: she described in evidence that she would simply sign documents as and when asked to do so by her husband. I mention in passing, only because Mr Coppel made reference to it, that in 2009 Mr Georgallides was charged with failing to deliver accounts and file an annual return for two companies, Rock of London Limited and Sugar Hut Village Limited (“SHVL”), and Mrs Georgallides was similarly charged in relation to at least SHVL. They pleaded guilty in the magistrates’ court. I consider this irrelevant to anything that I have to decide.

[17]The first claimant, Mr Michael Norcross, is a businessman, and in 2007 he became interested in owning a nightclub. He knew of the Club, having been a customer and having worked for a security company which had dealings with it. In August 2007 he was telephoned by Mr Georgallides, and they met at Mr Georgallides’ home in Essex. Mr Georgallides asked him for a loan of £600,000 to support plans to develop a new club at Basildon, which was to be called the “Sky Bar”. Mr Norcross declined to lend money, but he was interested in Mr Georgallides’ suggestion that he invest in a shareholding in Mr Georgallides’ night club businesses. When they met again a week or so later, Mr Georgallides offered to sell to Mr Norcross for £3.5 million a 49% interest in the clubs at Brentwood and Fulham. He said that together they generated profits of £20,000 to £40,000 per week, produced a “Business Development Plan” about future developments, and invited Mr Norcross to make due diligence inquiries.

[18]Further discussions took place between Mr Norcross and Mr Georgallides, some of their meetings being attended by Mr Jim Nicolaides and Mr Joseph Hadjijoseph of AOG. As Mr Norcross understood it, the proposal was that the assets and goodwill of each club be transferred to a new “clean” company, that Mr Norcross invest in them and that they should produce for him a dividend quarterly or more frequently. Mr Georgallides suggested that AOG arrange this new company structure. Mr Norcross discussed the proposal with his accountants, Chase Bureau, but they did not attend meetings with Mr Georgallides or AOG. Mr Norcross’s financial adviser, Mr Steven Day of A J Life, also reviewed trading accounts of the businesses.

[19]Mr Georgallides required that Mr Norcross pay a “deposit” of £350,000 to complete his due diligence, and on 6 September 2007 this was paid by Venture Credit Limited (“VCL”), a company incorporated in Dubai and apparently connected with Mr Norcross, to Mr Georgallides’ company, Recentrica Enterprises Limited (“Recentica”). Mr Norcross then visited the clubs during their opening hours, and he observed the procedures for recording takings. He learned that some expenses of the clubs were paid in cash from the takings, and that each week the net takings were taken to Mr Georgallides’ home. According to Mr Smith, Mr Georgallides would not bank all the takings from the Club, but he always paid enough into the bank accounts to “keep the business afloat and pay bills”, and had money at his home that would be available if required.

[20]Mr Norcross instructed Mr Day to deal with AOG on his behalf, and on 12 September 2007 AOG sent Mr Day and Mr Norcross a document described as “Summary Report as to the Group Structuring including draft accounts for the relevant trading companies for 2006”. It recorded that Mr Georgallides had “negotiated to sell part of his Sugar Hut interest to Mr Norcross”. On 17 September 2007 Mr Norcross sent Mr Georgallides his proposal for investing the rest of the £3,500,000. On 1 October 2007 AOG sent Mr Norcross by email a document called “The AOG Restructuring Proposal” (“AOG’s proposal”), which set out a suggested structure for his investment along the lines that had been discussed. It stated that, “By structuring the new partnership in a new Holding Group, it ensures that Mr Michael Norcross invests in a business that is clean, and without the risk of contingent liabilities. Furthermore it reduces substantially the requirement of an expensive and timely due diligence that would be required, should he invest in the existing group”. It also said that trading loans, by way of hire purchase loans and short term finance, were to be transferred to the “new structure”.

[21]AOG’s proposal set out a three-stage process to implement the new structure. The first step was to incorporate a new holding company and to allocate 510 shares in it to Mr Georgallides, to transfer to it Newlea Properties Limited (“NPL”), which held or was to acquire a lease of premises in Basildon for the Sky Bar, and Newplex Trading Limited (“NTL”), which was to operate and manage it, to sell to the new company the shares in Willow, Ramos and CGIP for £200,000, £150,000 and £10,000 respectively and for two new companies (which were to be SHBL and a company to operate the Fulham Club) to be incorporated as subsidiaries of Willow and Ramos. The second step was to make agreements for the transfer to the two new companies of assets of SHTL for a total consideration of £640,000 plus the value of the stock at the two clubs: the £640,000 comprised £140,000 for plant and machinery at the Fulham Club, £300,000 for the leasehold fixtures and fittings at the Club and £200,000 for plant and machinery at the Club. The AOG proposal pointed out that, “At this point the [new holding company] belongs 100% to Mr Chris Georgallides with signed contract of total consideration for £1,000,000 plus stock at the value date of 1st November 2007”. The third step was to arrange banking facilities, including one of £200,000 for the newly incorporated company that was to operate the Club, for the new holding company to issue another 490 shares of £1 each and offer them to Mr Norcross for £800,000 and to use the £200,000 and the £800,000 to pay the total consideration of £1,000,000.

[22]At the end of step 3, the AOG proposal said that Mr Georgallides and Mr Norcross would “inject a directors loan account on a 51/49 basis to [the new that shareholding company] so that it assists the new group to fund all capital costs for the acquisition of the new business at Basildon … and Stocks from Sugar Hut Fulham and Brentwood. At this point we estimate the total amount to be in the region of £400,000”.

[23]Mr Norcross said that he did not read AOG’s proposal carefully, and only “glossed through” it. He also said that he did not understand how the elements of the total consideration of £1,000,000 had been decided upon and that he had not agreed to them. I do not accept that: he probably was not concerned about how the total consideration was broken down and not interested to question it, but he is an alert businessman and I cannot accept that he was not concerned about the terms of so large an investment. He agreed to what was proposed, and it was implemented in a Share Purchase Agreement of 15 October 2007, an Asset Sale Agreement of 15 October 2007 and a Shareholders Agreement of 31 October 2007.

[24]In his first witness statement Mr Dickinson referred to the balance sheets of the companies that were to form the Group and said that “All of the material that I have seen drives me to conclude that [Mr Georgallides] and AOG engineered the Directors Loan entry into the accounts so that any drawings taken by [Mr Georgallides] thereafter would be debited to the accounts in reduction of the fictitious ‘loan’. Alternatively, because the accounts were prepared after the period in which [Mr Georgallides] had taken money from the company, the effect of the entry was to create a post-facto justification for the money [Mr Georgallides] had taken. … this entry contradicts standard accounting practice and had the effect of very significantly advantaging [Mr Georgallides] at the expense of the company”. Mr Coppel rightly disavowed any allegation that AOG had conducted themselves improperly, and I can see no proper basis for Mr Dickinson’s evidence. I reject it.

[25]By the Share Purchase Agreement, BBL sold for a total of £360,000 its shares in Ramos, Willow and CGIL to Sugar Hut Group Limited (“SHGL”), which had been incorporated with a new issue of 510 ordinary shares to Mr Georgallides. By the Asset Sale Agreement, SHTL sold to SHBL, which had been incorporated on 3 October 2007, the leasehold improvements, the plant and machinery, the fixtures and fittings and the stock in hand for the Club, and sold to Sugar Hut Fulham Limited (“SHFL”) the plant and machinery, the fixtures and fittings and the stock in hand for the Fulham Club. The total consideration payable by SHBL was £500,000, plus the amount of an agreed value for the Club’s stock in hand. The consideration payable by SHFL was £140,000, plus an agreed value for the stock in hand at the Fulham Club. The consideration was to be paid on or before 15 November 2015, that is to say after the Shareholder Agreement had been made. The Asset Sale Agreementstated that the only assets and liabilities to be transferred were those specified, and that no other liability, debt or obligation was transferred to SHBL or SHFL.

[26]By the Shareholders Agreement NIL applied for 490 £1 ordinary shares in SHGL for a consideration of £800,000 to be paid to Mr Georgallides’ company, Quefront Holdings Limited (“QHL”). Mr Norcross, through NIL, was thereby to acquire 49% of the shares in SHGL, and Mr Georgallides was to own 50% of them through his company, QHL, and 1% in his own name. It was agreed that on completion Mr Norcross would be invited to join the board of SHGL, but Mr Georgallides was to be the Chairman of SHGL and as such to have a casting vote on the board. The agreement was subject to various conditions, including that SHGL would not trade but would hold the shares of Ramos, Willow and CGIL and in four other companies: SHBL, SHFL, Newlea and NTL When I refer to the “Group” in this judgment, I mean SHGL and these seven subsidiary companies.

[27]The Shareholders Agreementprovided that SHGL would “keep all Shareholders informed of the progress of the Business and [would] direct [AOG] to provide to Shareholders such information as the Shareholders may from time to time reasonably request”, and specifically that AOG would provide(i) a detailed draft operating budget,

(ii) “within 25 days of the end of each quarter, a financial statement and management accounts for the Group, including a balance sheet, profit and loss account, comparison with the Annual Budget, together with a short narrative description of business developments in respect of that period” and

(iii) “as soon as reasonably practicable, such information as is known of any actual or prospective material change in the financial or trading position of the group”. Each shareholder was entitled to examine the books and accounts of SHGL to ensure compliance with those requirements.

[28]Under the Share Purchase Agreement and the Asset Purchase Agreement, therefore, Mr Georgallides’ companies were to be paid a total of £1 million, plus the value of stock at both clubs. Of his investment of £3,500,000, Mr Norcross paid £800,000 by way of consideration for the 490 shares in SHGL. Apparently the £800,000 was paid to SHTL and then remitted by SHTL to SHGL: it is obscure why it was so routed, and I cannot regard it as significant to what I have to decide. It can be seen from SHGL’s bank statement, which is in evidence, that some of these funds were used to pay the £360,000 which was due to BBL under the Share Purchase Agreement, and another £290,000 was paid to SHTL, which, I infer, was part of what it was to receive under the Asset Sale Agreement. On 30 October 2007 and 16 November 2007 sums of £60,000 and £70,000 respectively were transferred from SHGL’s account to Jedi Management Limited, who carried out what Mr Norcross described as “sound, lighting and audio-visual works” at the Sky Bar. Mr Norcross said that he did not know whether these were loans made by Mr Georgallides’ company, SHTL, to help the Group develop the Sky Bar, but that seems to me probable.

[29]As for the rest of Mr Norcross’s £3,500,000 investment, he arranged (in addition to the payment of £350,000 by VCL made in September 2007) for payments totalling £2,180,000 by two companies to bank accounts nominated by Mr Georgallides: i) A payment of £895,000 on 30 October 2007 to Recentica by Moat Financial Service Inc (“Moat”); ii) A payment of £985,000 on 1 November 2007 by Damask Limited (“Damask”) to an account of Mr Georgallides at Credit Agricole (Suisse) SA; and iii) A payment of £300,000 on 12 November 2007 by Damask to Recentrica. VCL, Moat and Damask were together referred to as the “Dubai companies”: VCL was incorporated there, and Moat and Damask, though incorporated in the Turks & Caicos Islands, had Dubai addresses.

[30]Mr David Barron, a business associate and friend of Mr Norcross, paid the other £170,000 to complete the £3,500,000 investment. Mr Norcross explained in evidence that he was “struggling to find the final part of the purchase price”. According to a letter dated 16 May 2008 from Mr Norcross to Mr Georgallides, the £170,000 was paid in cash by Mr Barron to Mr Georgallides at a meeting at Mr Georgallides’ house on 26 October 2007.

[31]AOG’s proposal had been that SHGL should have facilities of £1 million, and this should be funded by the £800,000 paid by Mr Norcross for his shares and a new facility with Barclays Bank plc (Barclays”) for £200,000, which was to replace “existing HP and other finance”. Mr Norcross’s evidence was that, because he did not read AOG’s proposal properly, he did not appreciate that the Group would require further facilities. He also denied that directors loan accounts had been mentioned during the negotiations, that he would have agreed that existing debts to directors might be transferred to the new Group, and that Mr Georgallides made loans to the Group companies. However, he accepted that he knew that funds would be needed for the plans for the Sky Bar, and that not all the funding could be from bank lending directly to NPL or NTL: he said that he thought that it would come from other companies in the Group, but recognised that it would have to be repaid to whoever provided it.

[32]As part of the new arrangements, the Group increased its loan and overdraft facilities with Barclays. Additional facilities of £350,000 were made available, increasing the total loan facilities to some £980,000 with overdraft facilities of £150,000. The Group companies provided cross-guarantees, and Mr Norcross (like Mr Georgallides) gave personal guarantees to a total of £1.15 million.

[33]On 1 November 2007, in accordance with the Shareholders Agreement Mr Norcross became a director of SHGL, and he also joined the board of most or all of its subsidiary companies: he became a director of SHBL on 10 November 2007. According to Mr Norcross, Mr Georgallides continued to run the business. Ms Lee worked full-time, and she was assisted first by a woman called Ms Kirsty Marsh, who had been a friend of the son of Mr and Mrs Georgallides and apparently worked part time for work experience; and later Ms Lee was assisted by Ms Emma Dunlop-Craven.

[34]The book-keeping and accounting for the Club and the Fulham Club had been carried out in a small office space at the Brentwood premises, but more space was required when the Sky Bar was acquired and Mr Norcross joined the Group. Shortly after he did so, the Group’s accounting operations were moved to a renovated barn at Mr Georgallides’ home, which was variously referred to as the “annexe” or the “office”. Ms Lee and her assistants were then based there, and the Group’s “Sage” computer systems were transferred there. Mr Nicolaides was told by Mr Georgallides that he would pay for the conversion of the annexe himself, apart from furnishing and equipping the office. The Group’s book-keeping and accounting was carried out at the annexe until May 2008 when, for some reason that the evidence does not explain, it was returned to the Club.

[35]Mr Dickinson said in his evidence that Ms Lee acted “under the direction of” Mr Nicolaides, but I do not consider that evidence reliable. However, Mr Nicolaides would attend regularly at the Club and then at the annexe to prepare accounting information and pay-as-you-earn (“PAYE”) and value added tax (“VAT”) returns.

[36]I must describe SHBL’s book-keeping procedures. The Club’s customers, of course, paid in cash or made credit or debit card payments, which were referred to as “process data quickly” machine or terminal payments or “PDQ” payments. Cash and card receipts were recorded on till income sheets, and these were used to draw up day summary sheets, which distinguished the amounts taken by way of cash and credit card. The information on the day summary sheets was transferred to individual day’s taking sheets and daily taking analysis sheets, which gave weekly summaries of the takings on each day. The information from the daily taking analysis sheets was transferred to the monthly taking analysis sheets, and these were used to make the VAT returns and also to prepare management accounts. The accounting records of the Group were on an accounting package called Sage Line 50. Charts were created for each company, and they included nominal ledger accounts, which comprised what were referred to as directors loans accounts, recording credits and debits against them.

[37]Mr Norcross said that, when he became a director of the Group companies, he was concerned about the accounting records, and he sought advice from Ms Lorraine Larman, an accountant’s manager at another company of which he was a director, Western Transport Limited. On 23 November 2007 she wrote to him that “Well basically the accounts are in a right mess. None of it makes any sense”. She described Ms Lee as “very good”, but reported that she was overworked and had been told by AOG not to reconcile the books with bank statements, which Ms Larman described as “absurd”. Mr Norcross did not, as I conclude from the evidence, take any steps to improve that bookkeeping in response to what Ms Larman told him.

[38]After Mr Norcross had invested in the Group, Mr Georgallides continued to use his own money to fund it, and in particular to fund the development of the Sky Bar. On 8 December 2007 he sent Mr Norcross what was described as a “New Costings Document”, which related, as I interpret it, to expenditure on the Sky Bar, and recorded that Mr Georgallides had spent some £646,000 of his own funds on the development. Mr Nicolaides said, and I accept, that this funding was, or should have been, recorded on the directors ledger accounts of the Group companies. Mr Norcross did not recall receiving the New Costings Document, but he did not dispute that he had received it or that it was accurate. I conclude that he did, and that he understood it. My conclusion that Mr Georgallides was providing substantial funding for the development of the Sky Bar is confirmed by a letter from Barclays to NTL dated 5 February 2008 offering a loan of £250,000 “to repay [Mr Georgallides] for refurbishment funds provided to the business”.

[39]On 6 November 2007 Ms Lee had sent Mr Norcross some spreadsheets, which set out items of expenditure between April and September 2007 totalling some £140,000. They included payments for Mr Georgallides’ personal expenditure, and Mr Norcross said that he “did not understand why Mr Georgallides’ personal expenses were being met from company funds”. By the end of 2007, as Mr Norcross said in his witness statement, he had learned that Mr Georgallides had been using company funds to develop and renovate his home. Mr Norcross said that he was concerned about this but “anxious not to cause any undue problems in my relationship with Mr Georgallides”. I do not accept that. When he was cross-examined, Mr Norcross said that he did not have “a great recollection” about whether, when he received the spreadsheets, he realised that Group funds were being used for Mr Georgallides’ own expenses, but I conclude that he did, as his statement indicates. In any case Mr Norcross accepted that by the end of 2007 he thought that Mr Georgallides was “misusing company funds”. In his witness statement Mr Norcross said that he “had at that time no reason to know that some of the payments identified on the schedule were payments made by Mr Georgallides without good cause, for no consideration, wrongfully or fraudulently”. This was not his evidence in cross-examination, and I do not accept it. Moreover, Mr Smith said that he had always known “to a point” that Mr Georgallides used company funds to pay personal expenditure, including expenditure on cars and under car financing agreements, and in January 2008 he discussed this with Ms Lee and Mr Norcross. I conclude that by the end of 2007 and certainly by early January 2008 Mr Norcross understood that companies in the Group were meeting some personal expenditure of Mr Georgallides and his family. In his second witness statement he said that a statement sent by Ms Lee in early April 2008 about “payments in respect of what appeared to be personal costs, including payments in respect of a Bentley and a Range Rover” had made him “suspicious” but he did not learn of the “wrongful and fraudulent nature” of them until 2009, when Mr Dickinson was appointed administrator of SHBL and conducted a review. I do not accept that evidence, which in my judgment was crafted in order to assist SHBL to answer the limitation defence raised by the Estate: Mr Dickinson’s review told Mr Norcross nothing of significance that he did not already know.

[40]Mr Norcross said that in January 2008 his concerns about this expenditure “escalated”, but he did not recall whether he mentioned them to Ms Lee: I conclude that he did not. He did not speak to Mr Georgallides about this until the end of February 2008, and I do not accept that he made any real effort to do so before then. (According to Mr Norcross’s statement and as Mr Coppel submitted on behalf of SHBL, Mr Georgallides was “elusive” when Mr Norcross tried to discuss what he had learned, and Mr Norcross said that Mr Georgallides and AOG denied him access to SHBL’s accounts and records. I do not accept that.) Mr Norcross said that, having initially denied knowledge of the expenditure, Mr Georgallides explained that he was owed money by SHBL, and said that he would have been “very relaxed” about Mr Georgallides recovering lending to the Group by having personal expenses paid by it, so long as there was “a reckoning at the end of the day”. Mr Georgallides apparently agreed to end some payments, and by letter dated 25 February 2008 he instructed his bank to pay from his own account standing orders and direct debits that had been paid by SHBL. (I observe that by a letter dated 28 July 2008 Mr Georgallides again wrote to Barclays instructing that monthly payments to Northern Rock, Lombard North Central and Ing Leasing should be taken from his own account and not from SHBL’s account. It was not explored in evidence why payments were still being made by SHBL, but I do not infer, and it was not suggested that I should infer, that Mr Georgallides reneged on an agreement made in February 2008 that no more such payments should be made.)

[41]In January 2008 Mr Georgallides went to Las Vegas for two weeks. In his witness statement Mr Norcross had said that he “had to step in and take over the day to day running of the venues”, but when he was cross-examined about this, he denied that he “took a more active role” while Mr Georgallides was away, although he did accept that he spent more time at the Club. However that might be, during this period Mr Norcross was contacted by suppliers and others who complained that they were owed money and their invoices had not been paid. On 7 February 2008 Mr Norcross transferred £60,000 to SHBL by way of a loan to assist its cash-flow. He said that he did not know how that would have been recorded in the accounts, but he supposed that Ms Lee would have dealt with it because she had asked him for the funding, This was the only time that Mr Norcross made a loan to the Group.

[42]In late February 2008 Mr Georgallides went to Thailand for some eight weeks, returning at about the end of April 2008. While he was away, on 2 April 2008 Ms Lee sent Mr Norcross a statement of the approximate monthly costs of the Club and the Fulham Club for the period November 2007 to February 2008. It showed payments by SHBL for private medical insurance, for motor vehicles that Mr Norcross understood to be used by Mr Georgallides’ family and to Northern Rock, which he understood to be mortgage payments for a flat bought in the name of Mr Georgallides’ son. Mr Smith also said that, while Mr Georgallides was in Thailand, he told Mr Norcross that he believed that some of the Club’s takings were being diverted from SHBL’s accounts. In cross-examination, Mr Norcross said that by this time he had become concerned that receipts were being diverted from SHBL:

“I thought that they were taking money”

. I accept that evidence.

[43]According to Mr Norcross, he attempted to contact Mr Georgallides in Thailand by telephone for financial information, but Mr Georgallides did not answer and did not return his calls. After he returned to England, Mr Georgallides sent an email to Mr Norcross on 9 May 2008 in which he wrote that he had “been trying to arrange a meeting” for some time to discuss the finances of the group: he referred to takings at the Club having fallen “largely due to the current market conditions and the unanticipated credit crunch that is affecting most of the western world”. He outlined his ideas for the business, and continued, “I understand that you have reservations about the group as a result of the current market conditions and perhaps because of my recent two month trip to Thailand even though this was discussed and agreed with you in advance. I need you to understand that I am firmly committed to the group. I will as I have always done work for the benefit of the group and the shareholders”.

[44]Mr Norcross did not reply to this letter: he said that, before he could do so, he had met Mr Georgallides at the Sky Bar and asked him to return his investment in return for the shareholding in SHGL, and Mr Georgallides refused. However, according to Mr Norcross’s witness statement, the letter was misleading in that Mr Georgallides has not discussed his visit to Thailand in advance and in that Mr Georgallides had not tried to engage in discussions about the Group’s finances. I reject that evidence: indeed, Mr Norcross largely retracted it in cross-examination. He accepted that Mr Georgallides had told him that he was going to Thailand, and his only complaint was that Mr Georgallides had not told him how long he would be away. He also said, by way of an explanation as to why he had not sent Mr Georgallides an email asking him to telephone, that he wanted to discuss his concerns at a face-to-face meeting, and that, although he and Mr Georgallides had spoken by telephone, he did not “mention [his] fears”.

[45]However that might be, by this time Mr Norcross had come to suspect that Mr Georgallides had tricked him into making the investment by fraud. By a letter dated 16 May 2008 to Mr Georgallides, Mr Norcross resigned as a director of SHGL and the other companies in the Group, including SHBL. He wrote, “please accept this letter as my resignation with immediate effect from [the companies]”. He continued “Please also arrange for my release from the guarantees … as a matter of urgency, in order that my resignation can take effect” This wording later led to a dispute about whether the resignations were conditional upon the guarantees being released, not taking effect unless and until they had been: I return to that. However, in an affidavit dated 17 June 2011 and sworn in Directors Disqualification Proceedings brought against him and Mr Georgallides, to which I refer below, Mr Norcross said that he resigned as a director “as soon as I suspected [Mr Georgallides] of irregular accounting and bad faith”, and he was clearly referring to his letter of 16 May 2008: this is further confirmation that by the middle of May 2008 he at least suspected Mr Georgallides of irregular accounting and bad faith in the management of SHBL.

[46]By another letter of 16 May 2008 to Mr Georgallides, Mr Norcross asked for the return of what he called “loans” of £350,000, £895,000, £985,000 and £300,000, all of which he said had been made by Moat, and he also said that Mr Barron needed to be repaid his £170,000. On 4 June 2008 the Dubai companies sent letters of “final demand” to Mr Georgallides. Mr Norcross said in his evidence that at the time he thought it “an arguable position” that SHGL and Mr Georgallides were liable to repay the funds provided by the “Dubai companies”, although he was later advised that they were not. In cross-examination Mr Norcross agreed that the payments were by way of investment and not loans: I do not accept that he ever really thought otherwise.

[47]By a letter dated 30 May 2008 Messrs Rochman Landau, Mr Georgallides’ solicitors, wrote to Mr Norcross proposing that SHGL should have a rights issue to raise £400,000 on the basis that he and Mr Georgallides would each subscribe in proportion to their 49% and 51% holdings. They wrote that “in the absence of any positive response [Mr Georgallides] will have no alternative but to seek professional advice from a firm of insolvency practitioners regarding the future trading” of the Group.

[48]On 2 June 2008 Mr Norcross asked Mr Georgallides to send him details of “the last six weeks’ takings and bankings and any expenditure incurred”, and repeated his request in emails of 3 and 4 June 2006 On 4 June 2006 he also asked for a copy of the Sage purchase ledger. Mr Nicolaides’ evidence was that, from the time he had become a director of Group companies, Mr Norcross had been “able to access all the books and records [of the companies in the Group] he might have wished to see as a director of the companies”. I accept that: there is no contemporary evidence of Mr. Norcross complaining about not having access to records until he sent his resignation latter, and while Mr Georgallides was away, there was nobody in a position to deny him access to information that he wished to have. On 4 June 2006 AOG replied to Mr Norcross with proposals as to what might be “a reasonable level of information” for Mr Norcross’s purposes “without costing the company an unreasonable amount in terms of reporting costs”, and said that Ms Lee was bringing the purchase ledger up to date and would send Mr Norcross an “aged creditor analysis” by 6 June 2008.

[49]In a reply of 5 June 2008 Mr Norcross expressed surprise that he had not been provided with the information requested, and asked that it be provided by Mr Georgallides or Ms Lee, rather than AOG. He wrote that, although he had tendered his resignation, he was still a director “until [his] personal guarantees [had] been cleared”, and he therefore needed information to fulfil his director’s duties. The exchanges continued: according to Mr Norcross, his proper demands for information were being blocked, and according to Mr Nicolaides AOG were trying to provide a proper amount of information without incurring excessive expense. Mr Nicolaides was a reliable witness, and I see no reason to reject his evidence about this.

[50]At the end of June 2008 Mr Georgallides instructed a firm of accountants, Hacker Young, to prepare a report on the Group, and Mr Norcross sought advice from Mr Dickinson, a licensed insolvency practitioner with Bridge Business Recovery LLP (“BBR”). On 2 July 2008 Mr Georgallides wrote to Mr Norcross that “Unless we take positive steps forward to resolve our differences very soon, I will be forced to consider placing the group into administration or possibly liquidation”. He suggested a meeting, but no meeting took place because of disagreement about where it should be held. By letter dated 8 July 2008 Mr Dickinson wrote to Mr Norcross, recording that at meetings about SHGL “it was agreed by all parties that the best course of action would be to place [SHGL] (and all companies within the group) into a creditors appointed administration”.

[51]BBR produced a report (or draft report) in July 2008 (the “July report”). It was in Mr Dickinson’s name but he said that he did not have “a vast input” into it himself. He also explained that it was prepared quickly and was never adopted. The July report said this at paragraphs 5.5 and 5.7 to 5.12, in which the expression “the Group” is used in the same sense as I use it in this judgment and “the Company” means SHGL:

“Mr. Norcross is suspicious thatthe main Shareholder and Director, Christos Georgallides, set up the Group to extract money from him, have him as a cosignatory on the personal guarantees held with the bank and then allow the business to fail. … Mr. Norcross has informed me that money was used to fund personal expenditure of Mr. Georgallides and his family. For example a total of £100,000 in Las Vegas on sporting memorabilia that Mr. Georgallides claimed was for the new venue, Sky Bar. However, these items have all been used to decorate Mr. Georgallides’ home. An amount of approximately £70,000 was also spent in Thailand on various artifects (sic), materials and furniture. These assets never ended up in any of the trading companies. It will be possible to claw back these assets should the Group enter Administration. Further assets of the Group that are being used for Mr. Georgallides’ own personal use include at least three cars, two vans, a quad bike and a large amount of garden furniture. All of these assets have been paid for by the Company. Mr. Norcross has seen these items on the Group’s bank statements. It will be possible to claw back the above mentioned assets should the Group enter Administration. Mr. Georgallides uses Group’s funds to pay for his vehicle, home and health insurance. Mr. Norcross has seen these items on the Group’s bank statements. Mr. Georgallides pays his mother an amount of £1,270 a month from Company funds. His mother is not an employee of the Company. Mr. Norcross has seen these payments on the Group’s bank statements. Mr. Georgallides pays his own personal housekeeper a salary from Company funds and claims that she is the manager of one of the venues. Mr. Norcross has seen payments on the Company’s bank statements go to her”

. The July report said that with the benefit of a moratorium SHGL could continue to trade while a review was undertaken and the possibility of selling it as a going concern considered and the viability of a creditors’ voluntary administration investigated. However, the conclusion was that the Group was insolvent and the appointment of Joint Administrators the most appropriate course.

[52]On 31 July 2008 Hacker Young provided a “Financial Review Report”. Mr Coppel referred to it as a report into the affairs of the Group, but on its face it is about Newplex and Newlea, the companies concerned with the Sky Bar. It recorded directors’ loans of some £158,000. Mr Norcross apparently understood it to conclude that the Group was insolvent as a result of deteriorating trade performance over the previous nine months, but in fact that conclusion was, as Mr Dickinson confirmed, only about Newplex.

[53]On 6 August 2008 Mr Norcross presented petitions in the Companies Court to wind up SHBL, SHFL, Willow, Newlea and Newplex on the grounds that they were unable to discharge their potential liabilities to Barclays Bank plc for facilities provided to the Group, and had no reasonable prospect of being able to do so. On 15 August 2008 Mr Davidson had a meeting with Mr Nicolaidas and a lawyer advising Mr Georgallides, and suggested an independent business review into the finances of the Group, but the meeting ended without agreement.

[54]On 20 August 2008 Mr Norcross sent Mr Dickinson an email setting out information that he had been given about the takings at the Club, the Fulham Club and the Sky Bar in June, July and August 2008. He expressed concern that they did not reflect the takings that he had seen when Mr Georgallides had been in Thailand, and he had had “to deal with everything”: he observed that the recorded takings were less than half what they had been then. According to Mr Norcross, he feared that Mr Georgallides was planning “to run the business into the ground with the aim of buying it back from an administrator or liquidator”, understanding that Mr Georgallides had so acted previously.

[55]On 21 August 2008 SHBL and the other companies applied to strike out the winding up petitions.

[56]In late August 2008 AOG produced management accounts for SHBL for the period to 30 June 2008. The notes included among the creditors with amounts falling due within one year “Directors’ accounts £296,370”.

[57]On 5 September 2008 Mr Dickinson visited the office at the Cluband examined records of SHBL. He was there for four or five hours. In one of his witness statements he said that he was given “supervised and restricted access to documentation by Mr Nicolaides during the audit”. In cross-examination, he accepted that he was not restricted: he could have looked at anything that related to “Sugar Hut”. He reported on his visit to Mr Norcross in an email dated 7 September 2008, attaching a spreadsheet of SHBL’s assets and liabilities, and added (in that email or the next day) his comments on it. In his email he wrote that he thought that he could easily demonstrate that “the group is insolvent or is likely to become so once the losses incurred at Basildon are absorbed into the group”. He continued, “This coupled with the fact that the companies all rely on significant support from connected parties by way of loans etc would make it a fairly straightforward exercise to cast doubt over the probity of the information provided”. Mr Dickinson explained in his evidence that he was referring to directors’ loans or inter-company positions and that he was aware of some of these after his visit to the Club.

[58]Mr Dickinson also wrote in the email that: “You will note the inconsistencies in the level of till receipts reported, it is my view that the takings are consistently underreported with one or more of the tills being ignore/diverted [sic] for the purposes of declaring takings. In April you will note that there are no restaurant receipts recorded, on other dates the reception takings [sc entry fees to the Club] are ignored, on others one or more of the tills seem to be missing. Additionally there was a spreadsheet on the premises titled Trigame Leisure Limited which scheduled takings in April. I was unable to obtain a copy and am not aware that anyone was aware that I saw the spreadsheet, but it recorded takings of £160,859 for April against declared receipts of £90,866.15”.

[59]As I shall explain later, this document that referred to Trigame was apparently one of some 24 such sheets, which are the basis for the Trigame allegations. Mr Dickinson’s evidence in his witness statementwas that he had not known of Trigame Leisure Limited until he saw the name on the takings sheet in a file kept at the office. He said that he asked Mr Nicolaides who Trigame were, and was told that the company had never traded and that “the takings sheet was simply an instance of the bookkeeper using the wrong form”. Mr Nicolaides had no recollection of this: all he could say was that, if Mr Dickinson had asked him about Trigame, he would probably have asked Ms Lee about it. But I reject Mr Dickinson’s evidence: I find it impossible to reconcile it with his report of 8 September 2008 that he thought that no one knew that he had seen the document. Further Mr Dickinson did not remember being given that explanation: he said in cross-examination “I may have asked the question, ‘What’s Trigame Leisure’ and was given an answer”.

[60]Mr Norcross said in his second witness statement that he was told that “the explanation for the Trigame spreadsheet was that it was a clerical error”, and he “had no reason to believe that it was not true”. I reject the evidence that he was told this. However, more importantly, he said in cross-examination that the information about Trigame confirmed the fears that he had had since about April 2008 that receipts were being diverted from SHBL.

[61]Mr Dickinson reported to Mr Norcross that, according to the management accounts, SHBL was funded by directors’ loans in the sum of £296,000 (as well as the Barclays loan of £400,000). Mr Norcross had lent only £60,000, which would mean that Mr Georgallides’ loan account stood at some £236,000. (I am assuming that Mr Norcross’s loan of £60,000 was still categorised as a director’s loan although strictly, as Mr Nicolaides confirmed, it should not have been if his resignation had taken effect.) Mr Dickinson continued:

“Whilst I was able to verify the level of funding, I was unable to verify certain other figures. From the information available to me, it appears that [SHBL] owes [SHTL] ... some £356,103.45 and that Mr Georgallides has drawn monies totalling some £112,134.25. This, when taken [with] other minor adjustments, would seem to equate with what is described as the Directors’ Loans on the management accounts”

. Although he was reluctant to accept it in cross-examination, Mr Norcross must have understood that Mr Georgallides’ loan was some £236,000. He said that he did not pay attention to the report, but I do not accept that: he had instructed Mr Dickinson to investigate the position for the purpose of contested litigation, and he must have been interested in what Mr Dickinson had learned.

[62]Mr Dickinson also reported that SHBL and SHFL had supported the development of the Sky Bar. Mr Norcross again denied that he had paid attention to this when he received Mr Dickinson’s report, but again I reject his denial.

[63]On 8 September 2008 Mr Norcross made a statement in response to the applications to strike out the winding up petitions. (The statement was formally made in the proceedings about Newplex, but its purpose, as it expressly explained, was to deal with all five applications, which were to be heard together.) In it he referred to Mr Dickinson’s inspection on 5 September 2008, which he described as a “spot check audit” of SHBL’s business. He referred to the reports that he had had from Mr Dickinson, and said that “interim snapshot reconciliations of the level of reported takings against the level of till receipts … [suggests] that there may be accounting irregularities at [SHBL]”, and continued, “For example, I understand that at times no restaurant receipts have been recorded, on other dates reception takings do not tally with reported takings and that in some cases recorded takings seem to omit the takings from one or more tills”. He exhibited to his statement a spreadsheet that, he said, showed “discrepancies between the level of till takings and recorded accounts for 5 April and 5 July” 2008, and he described the discrepancies as “a matter of serious concern”.

[64]On 9 and 10 September 2008 Kitchin J heard the applications to strike out the petitions. Mr Norcross did not attend the hearing, and he was represented by Ms S Foley of counsel. Her submissions reflected Mr Norcross’s concerns about how the business of the Group and of SHBL in particular had been run. I cite by way of example these submissions:

“… we were pressing and pressing and pressing to ascertain what we could …” “we became aware … that there were, potentially, cash receipts which were not being banked; in effect, asset stripping or money which was disappearing. “[The money that was not banked] could be masses of money. We do not know and we are very, very concerned about that”. “We have reason to believe that cash is being taken out. We have reason to believe that assets may be stripped out”

. The petitions were struck out by Kitchin J on 12 September 2008.

[65]In his letter of 18 September 2008 Mr Smith suggested to Mr Vocario that he might try to find out whether Mr Georgallides had moved money to Thailand. He also wrote “we strongly said [Mr Georgallides] has moved some of the money out there …”. In his evidence Mr Smith said that it was “an assumption” that Mr Georgallides had moved SHBL’s receipts from the Club. He said that this was an “assumption of a few people” who had left the Group, and that “possibly” they included Mr Norcross. Although Mr Smith would not put it more strongly than that, I have no doubt that Mr Norcross was among those who believed this. The correspondence makes it clear that he and Mr Smith were in close contact, and Mr Smith knew how the litigation was proceeding.

[66]Further, in September 2008 Mr Norcross was in correspondence with Barclays, and he alleged impropriety on the part of Mr Georgallides. On 19 September 2008 Barclays were sent an email in his name: Mr Norcross said that the letter was drafted by Mr Day, but he saw it before it was sent and it represented his views as well as Mr Day’s. It referred to “Heads of Terms” for a compromise of the dispute proposed by Mr Georgallides’ lawyer, but said that a compromise was some way off. It continued:

“… there are a number of terms that would leave me personally exposed to all the wrong doing and improper and/or illegal acts that have been revealed in recent times as carried out by [Mr Georgallides] and his advisers with the Sugar Hut Group. As you are aware, in court and before hand, the bank has been made aware of suspected theft and wrong doings in the company, apparent accounting irregularities and of course the issues that follow on from this in terms of VAT and Tax evasion and the general aspects of money laundering offences …”

. It also said, “It is well documented that [Mr Georgallides] wanted to take my money, rape the cash from the takings without my knowledge or consent, crash the businesses as he has done many times before, and buy it back for a fraction of the value”.

[67]On 23 September 2008 he wrote, “… we understand that since Thursday members of Chris Georgallides’ family and Mr Georgallides’ staff at home have been to the venue at Brentwood and removed over a period of three days a large amount of stock and assets in large trucks. I believe that whilst this may be his right to instruct his family and staff to do this whilst he is in Thailand, I do believe that this will prejudice my position and potentially the bank in the event that the businesses are placed into administration. Along with the fact that further cash takings have possibly not been declared, it is evidence unless the Bank are aware of this you are in no position to act”. On 25 September 2008 he wrote, “The quality and the integrity of the information, and to a very great extent that of Mr Georgallides and AOG, are very much in question. Whilst you are correct in stating that there is a dispute between Mr. Georgallides and myself, it does concern the matter of the financial accounting, something that I believe should be of concern to the bank given their prior knowledge and notification of this. Martin Rowe [of Barclays] was made aware of the suspected theft of funds and rather than freeze the accounts of the business at that time pending review and investigation with the assistance of the companies, its officers and stakeholders, he chose to grant new mandates in the name of the suspect. An interesting position I am sure you will agree. In your vast experience, would that make the bank party to the suspected offence if later proven?”.

[68]By an agreement dated 16 October 2008, Mr Norcross, Mr Georgallides and companies associated with them, including the Group, entered into a Settlement Agreement (the “Settlement Agreement”). Mr Barron was also party to it. The Estate contends that by the Settlement Agreement SHBL released Mr Georgallides from the claims that it now seeks to pursue, and settled any liabilities in respect of them. At the same time by a Share Purchase Agreement of 16 October 2008 QHL agreed to sell to NIL for consideration of £1 the 510 shares registered to it and to Mr Georgallides on terms that the sale and purchase were to be completed simultaneously with the “completion by all relevant parties of the Settlement Agreement”. Stock transfer forms in respect of the 510 shares dated 16 October 2008 were signed, and thus NIL came to own all the shares in SHGL. On 15 November 2008 Mr Norcross was reappointed director of SHGL and all its subsidiaries, and shortly afterward Mr Georgallides ceased to be a director. (It appears from the documents that Mr Norcross signed a share certificate for NIL’s 1000 shares in SHGL dated 16 October 2008 as “the sole director of the company”, but he had not yet been re-appointed to the board.) Mr Smith also joined the boards of SHGL and SHBL.

[69]Ms Lee continued as bookkeeper for the Group, but, according to Mr Norcross, when he took control of the Group under the Share Purchase Agreement of 16 October 2008, he found that the records were deficient. In his first witness statement he said that “all of the computers had been wiped clean of any information and records removed from the business. The computer, and the back-up server, had been replaced with new equipment”. In cross-examination he accepted that there might have been such documents as the daily taking sheets, but not management records. He asked AOG for any records that they had, and on 29 October 2008 AOG delivered what were described as “a number of sealed black bags”, apparently 7 or 8 bags of papers. Mr Norcross said that “Over the next few months” he came to realise that Mr Georgallides had “severely damaged” the business, and that SHBL faced demands from suppliers claiming outstanding debts with records to ascertain whether the claims were proper. On 21 October 2008 Mr Norcross wrote to Barclays, explaining that he had “become the sole owner of [the Group], and that a “large number of vital files” had been removed from the business the previous week by “the Georgallides parties”, and he and his “team” were “Trying to establish precisely what mess [had] been left with us”. He enquired of Barclays what loans and overdraft facilities the Group had.

[70]I am sceptical of Mr Norcross’s evidence about this: he did not mention in his witness statement about the computer records being deleted, he was very vague in cross-examination about quite what records were available and apparently did not ask Ms Lee, and he seems to have made no great effort to ascertain the company’s financial position. He did not review the documents received from AOG and did not recall asking anyone else to do so. When he faced the Directors Disqualification Proceedings, to which I refer below, Mr Norcross explained in an affidavit of 17 June 2011 the difficulties created by losing records in the fire of September 2009 but not about the computers being wiped and records being missing in October 2008: I found unconvincing Mr Norcross’s explanation in cross-examination that he had forgotten to mention it. I accept that Mr Norcross did not find the documents that he expected when he took control of SHBL, but I am not persuaded of more than that.

[71]By late December 2008 Mr Norcross had asked Mr Dickinson for advice, and Mr Dickinson advised that one option was to put SHBL into administration. Mr Norcross paid Barclays some £360,000 to reduce the liabilities of Newplex and SHBL to the bank. In January 2009 Mr Norcross was further advised by Mr Dickinson. On 3 February 2009 SHBL and on 4 February 2009 SHFL and Newplex were placed into administration, and Mr Dickinson and Mr Alex Cadwallader, also of BBR, were appointed joint administrators. On 18 January 2010 SHBL was placed into liquidation by a creditors’ voluntary resolution, and on 20 January 2010 Mr Dickinson and Mr Cadwallader were appointed joint liquidators. Newplex and SHFL were also wound up in January 2010.

[72]By letters dated 20 December 2010 the Insolvency Service, on behalf of the Secretary of State for Business, Innovation and Skills, gave notice to Mr Norcross and Mr Georgallides that he intended to bring Directors Disqualification Proceedings against them, alleging that they were unfit to be concerned in the management of a limited company because they had caused SHBL to submit inaccurate Value Added Tax (“VAT”) returns for the periods 24 October 2007 to 31 January 2008 and 1 February 2008 to 30 April 2008: Mr Norcross had signed the former and Mr Georgallides the latter. In essence the allegation was that some of SHBL’s takings during those periods had been recorded in the name of another company. Proceedings were brought in the Southend-on-Sea County Court. On 28 January 2011 Mr David Brooks, a Chief Examiner in the Investigations and Enforcement Services Directive of the Insolvency Service, made an affidavit (the “Brooks affidavit”) in support of the proceedings. He alleged that the VAT declared by SHBL was lower than its receipts, the daily takings being largely recorded in cash and some being recorded as takings of Trigame. On 15 February 2011 Mr Georgallides gave an undertaking whereby he agreed not to be a director of an English company for six years. Mr Norcross contested the proceedings and replied to Mr Brook’s evidence in an affidavit dated 17 June 2011. He said that the VAT returns were prepared by AOG, that when he signed the returnhe did not know of “the wrongful actions perpetrated” by Mr Georgallides against SHBL, and denied the allegations of wrongdoing against him. He said that he had been “a victim of a serious misfeasance committed by [Mr Georgallides] against [SHBL]”. The proceedings against him were dropped.

[73]These proceedings were brought on 2 October 2013 by Mr Norcross and NIL against Mr Georgallides. On 10 December 2013 they entered judgment in default of acknowledgment of service. On 19 December 2013 Mr Georgallides applied to set the judgment aside. On 20 December 2013 he died. On 14 February 2014 his personal representatives were substituted as defendants. On 16 May 2014 the judgment was set aside on the grounds that service on Mr Georgallides was invalid. On 24 August 2014 particulars of claim were served, pleading claims for Mr Norcross, NIL, SHGL and SHBL, although SHGL and SHBL applied to be joined as claimants in the proceedings only on 15 October 2014. On 19 December 2014 the four claimants served an amended claim form pursuant to permission given by Eder J at a case management conference on 28 November 2014.

[74]On 10 April 2015 the defendants applied for summary judgment and on 23 April 2015 the claimants applied to amend the Particulars of Claim and to join as claimants the liquidators of SHBL in order to bring claims under the Insolvency Act, 1986. These applications were heard by Hamblen J on 30 April 2015. By his judgment,

[2015] EWHC 1290 (Comm)

of 14 May 2015, Hamblen J ordered that the claims of Mr Norcross and SHGL be dismissed. He also ordered that the claims of NIL be dismissed, but allowed it to remain party to the action pending final determination of the claimants’ application to amend to bring a claim that it was induced to enter into the Shareholders Agreement of 31 October 2007 by Mr Georgallides’ fraudulent misrepresentation. In the event, the claimants have not pursued the application to amend to introduce this claim, and so NIL’s claims are all dismissed.

[75]As for Hamblen J’s order on the application to amend, he allowed some of the proposed amendments, refused others, and adjourned the application with regard to the rest, including the application for the liquidators to be joined as claimants, to be determined at the trial. His order provided that the application to amend was allowed in respect of amendments underlined and otherwise marked in a draft pleading said to be attached to his order, and that the “attached” pleading also indicated by shading what was adjourned to the trial judge. Unfortunately, however, no draft pleading was attached to the order that he signed, and Mr Coppel and Mr Lord were unable to agree quite what amendments were permitted by Hamblen J and should have been so indicated on an attached draft: I return to that difficulty later. In broad summary, the only pleaded claims that survived the judgment of Hamblen J were SHBL’s claims for relief for breach by Mr Georgallides of his duties as its director, and in so far as SHBL sought to expand its claims and the defendants objected to the proposed amendments, in particular on the grounds that they would introduce new claims which were statute barred, he adjourned the application to amend. Thus, he concluded at para 101 of his judgment, as follows: “ … the trial will be concerned with the breach of duty claims made by [SHBL/its liquidators] and, if permission to amend is granted, NIL’s claim for misrepresentation in relation to the Shareholders Agreement and [the liquidators’] Insolvency Act claims. In addition, the Defendant retains the right to object on limitation grounds to the amendments made to plead dishonesty and to [SHBL’s] constructive trust claim. In so far as further amendments were put forward at the hearing for handing down of the judgment, if they are to be pursued these too will have to be addressed at the trial”.

[76]Hamblen J ordered the claimants to serve by 18 May 2015 a revised Amended Particulars of Claim, and that the defendants serve a proposed list of issues arising out of the revised draft, and this was done.

[77]Accordingly, before hearing any evidence at the trial, I heard an application by SHBL to make extensive amendments to its pleadings. I announced my decision to allow some amendments, to refuse others and to defer my decision on the rest until the end of the trial. Because the application had already disrupted the trial timetable and to avoid further delay, I did not give my reasons immediately and said that I would give them in this judgment.

[78]SHBL already pleads a claim of £685,452 on the basis that its trading income was “fraudulently diverted” to Trigame at least between 1 November 2007 and 4 May 2008, but this claim does not include the income for two weeks during that period for which no records have been found. It sought permission to amend its other claims, either to plead them for the first time or to set them out more specifically. These proposed amendments relate to nine claims or categories of claims: i) The “two weeks Trigame” claim: this is a claim for £54,376 made on the basis that SHBL’s trading income was “fraudulently diverted” to Trigame in the two weeks in about January 2008 for which records have not been found. ii) The “later Trigame” claim: this is a claim for £655,529 made on the basis that SHBL’s trading income was “fraudulently diverted” to Trigame between 5 May 2008 and 16 October 2008. iii) The “SHTL cards” claim: this is a claim for £157,027 made on the basis that payments at the Club made by credit or debit cards were fraudulently paid into the bank account of SHTL. iv) The “SHTL cash” claim: this is a claim for £26,302 made on the basis that cash payments at the Club were fraudulently paid into the bank account of SHTL. v) The “car expenditure” claim: this is a claim for £15,333 by way of payments made by SHBL in respect of a Bentley, a Range Rover and a Chrysler car. vi) The “general expenditure” claim: this is a claim for £157,027 in respect of payments made by SHBL for the personal benefit of Mr Georgallides and his family. vii) The “vehicles misappropriation” claim: this is a claim that cars and motorbikes belonging to SHBL were “fraudulently misappropriated to the use of Mr Georgallides and/or members of his family and never returned”. The total values of the vehicles when they are said to have been appropriated is estimated at £130,000. viii) The “artefacts misappropriation” claim: this is a claim that “artefacts, furniture etc” with an estimated value of £70,000” were “Fraudulently misappropriated to the use of Mr Georgallides and/or members of his family and never returned”. ix) The “liquidators’” claims: the liquidators of SHBL apply for permission to be joined as additional claimants and make claims against the Estate under sections 238, 239 and 423 of the Insolvency Act, 1986.

[79]It is convenient to deal with the liquidators’ claims immediately. I deferred my decision about them when the application for permission to amend was made. Mr Coppel explained in opening that they did not arise unless the “primary means of recovery” did not succeed, and they might well not arise even then. Mr Lord agreed that I should not determine whether to permit them until after the evidence, and accepted that they do not introduce any questions of fact that would not be considered in any event. Counsel did not refer to them in their final submissions. When I hand down this judgment, I shall allow them to address me further, if so advised, about the application for permission to pursue the liquidators’ claims.

[80]SHBL sought permission to make other amendments to its pleading. The significant ones were to introduce these arguments. (I dealt with other amendments, but they do not warrant further consideration in this judgment.) i) The “settlement condition” argument: an argument that the Estate cannot rely on the Settlement Agreement because of a condition in it was not fulfilled. ii) The “constructive trust settlement” argument: an argument that the Estate is liable as constructive trustees to account to SHBL, including an allegation that, Mr Georgallides acted in breach of his fiduciary duty to SHLB when he had SHBL enter into the Settlement Agreement, in that the settlement agreement was beneficial to him personally. iii) The “section 21 limitation” arguments: arguments that the claims are covered by section 21(1) or 21(2) of the 1980 Act, and so not subject to a time-bar defence. iv) The “section 32 limitation” argument: an argument that the claims are not subject to a time-bar defence because the period of limitation was postponed under section 32(1)(b) of the 1980 Act because Mr Georgallides deliberately concealed facts relevant to SHBL’s right of action.

[81]In my ruling before the evidence I permitted SHBL to advance the two weeks Trigame claim, the artefacts misappropriation claim, the section 21 limitation arguments and the section 32 limitation argument. I refused it permission to pursue the SHTL cards claim and the SHTL cash claim. I deferred until the end of the trial my decisions about the later Trigame claim, the vehicles misappropriation claim, the settlement condition argument and the constructive trust settlement argument. There is some unfortunate confusion about the car expenditure claim, which was pleaded in paragraph 106(2)(ii) of the relevant draft pleading, and the general expenditure claim, which is pleaded in paragraph 106(2)(i). I had intended to give permission for the car expenditure claim and defer my decision about the general expenditure claim. According to the transcript of the ruling, I said that I would allow SHBL to pursue the claim in paragraph 106(2)(i) - sc the general expenditure claim – and also that I would defer my decision on the claim in paragraph 106(2)(i); and I made no reference to the car expenditure claim in paragraph 106(2)(ii). I do not know whether there is a mistake in the transcript, or I mis-spoke when giving my ruling and the mistake was not picked up by counsel. However, this is fortunately of no consequence because I have concluded that I should allow the amendments about both these claims. I also permit the amendment about the later Trigame claim. I refuse the amendments about the vehicles misappropriation claim, the settlement condition argument and the constructive trust settlement.

[82]In order to explain my decisions on the application to amend, I first identify the versions of the claimants’ pleading or proposed pleading that have been produced, which were referred to during the trial as “mark 1”, “mark 2” etc. i) Mark 1 was the original particulars of claim pleading the claims of the original claimants, Mr Norcross and NIL. ii) Mark 2 was the particulars of claim served after, pursuant to the order of Eder J, SHGL and SHBL were added as the third and fourth claimants. It is the current version, subject to Hamblen J’s order dismissing many of the claims in it: later versions include proposed amendments for which permission has not been given. iii) Mark 3 was a draft pleading for which the claimants sought permission in the notice of the application before Hamblen J. iv) Mark 4 was a draft pleading that the claimants introduced during the hearing before Hamblen J and for permission for which they applied orally to him. v) Mark 5 was a version of the pleading that was produced after that hearing, which the claimants intended to reflect Hamblen J’s directions, but to which the Estate objected on the basis that it did not do so properly. vi) Mark 6 was a revised version of mark 5, making changes to accommodate the defendants’ complaints. Mr Lord said that this version should have been appended to the order made by Hamblen J. vii) Mark 7 was the version served pursuant to the order of Hamblen J and for which SHBL was seeking permission at the start of the trial. viii) Mark 8 was the version for permission for which the claimants applied for permission on 4 June 2015 (the second day of the trial). SHBL had amended the mark 7 version in light of Mr Lord’s criticisms and my observations on the first day of the trial. (SHBL also applied on 4 June 2015 to amend its reply, having transferred into the proposed reply some of the amendments that it had sought to make to its particulars of claim, but I do not need to deal specifically with the reply in this judgment.) Understandably Mr Lord complained about the difficulties of responding to the “moving target” that the various versions of the pleading represent.

[83]It is very unusual for a party to seek permission to make amendments on this scale at the trial. It is true that the claimants first applied for permission for many (but not all) of them on 23 April 2015, and Hamblen J adjourned this part of the application to trial, but even so the application was made at a late stage in the proceedings. SHBL proffered no explanation or excuse for this. In general terms Mr Coppel submitted that there is “nothing new” in the claims and arguments that are the subject of the proposed amendments, and said that their purpose is to “align” the pleading to SHBL’s expert report, its opening and “the material before the court”. He argued that the Estate is not prejudiced because it knew what SHBL alleged, as, he contended, is shown by the list of issues Hamblen J directed the Estate to produce before the trial. Importantly, he also submitted that many of the amendments did no more than develop and clarify the present pleading in mark 2, which, he did not dispute, is in places clear and vague but of which the Estate did not seek particulars or clarification.

[84]Mr Lord opposed the material amendments. First, he argued that they are not properly pleaded and particularised, even in version 8. This is an important point. As Lloyd LJ emphasised in Swain-Mason v Mills & Reeve,

[2011] EWCA Civ 14

para 107, where there is a late application to amend, a satisfactory draft of the purposed amendment is essential.

[85]Secondly, Mr Lord relied on evidence of Mr Sanjive Haldankar, of Quastel Midgen LLP, who act for the Estate, who explained the difficulties that it would have in responding to the new case without an adjournment, and said that, if amendments were permitted, the Estate would “have no choice but to seek an adjournment”. Mr Lord cited the judgment of Carr J in Quah Su-Ling v Goldman Sachs International,

[2015] EWHC 759

, esp at paras 36-38, setting out the principles that govern late application to amend, and submitted that it would be both contrary to the proper approach that she explained and unfair to the Estate to adjourn the trial to accommodate the amendments, and so they should be refused.

[86]Thirdly, Mr Lord cited the observations of Hamblen J in his judgment in this case about how the courts deal with an application to amend where a defendant can show a reasonably arguable case that if new proceedings were brought, a limitation defence to the new case would be available at the time of the application but it would be lost (because of the doctrine of relation back) if the amendment would be allowed. He repeated his submission advanced before Hamblen J that in those circumstances an application to amend should be refused, leaving SHBL to bring new proceedings if it wishes to pursue the claim. This argument applies only if the amendment would introduce a new claim and it does not arise from the same or substantially the same facts so that it is covered by CPR17.4.

[87]Of course, a party who seeks permission to amend his case to introduce new issues at or shortly before trial has to show a cogent reason for the application being late. It no longer needs be repeated that the court does not discount prejudice to other parties on the basis that they can be compensated in costs or an adjournment or both. It takes account of the impact of the disruption not only on other parties, but on the efficient case management and on the administration of justice generally. That said, in the case of some of the proposed amendments, I accept Mr Coppel that on examination they clarify and sometimes narrow SHBL’s present (“mark 2”) pleading: obviously they are to be viewed differently. The Estate might not have anticipated having to meet them because the pleading is obscure, but some of the amendments are about claims or arguments that SHBL could properly advance in any event. Undoubtedly it would have been more satisfactory if they had been better pleaded before, but if the claims are available on the present pleading, there can be no sufficient or sensible reason for refusing the amendments. The court’s stricter approach to late amendments signalled in the Swain-Mason case is really directed to what Lloyd LJ called (loc cit at para 107) “new and significantly different claims”, or, I think, more generally new and significantly different arguments. As I shall explain, my general approach has been to refuse permission that, in my judgment, would introduce new and significantly different arguments, and to allow those which do not.

[88]First, I take together the two weeks Trigame claim and the later Trigame claim. In the mark 2 version of the pleading, SHBL claims a total of £826,338.96, which comprises(i) a claim for £719,477 and

(ii) a claim for £106,861.96 (para 118). The sum of £719,477 picks up a reference in the pleading (at para 79) to the Brooks affidavit, in which, as it is pleaded, Mr Brooks attested that for the period from 24 October 2007 to 23 June 2008 the management accounts of SHBL showed total takings of £1,403,133 whereas “an examination of the bank accounts of [SHBL] and Trigame revealed that the total gross takings for the period October 2007 to June 2008 (inclusive) was £1,693,579 …, a discrepancy of £719,477” (para 79(8)). In my judgment, therefore, the present pleading covers a claim for moneys said to have been diverted to Trigame, at least for a period to June 2008.

[89]After the mark 2 pleading was served but before the application to amend to mark 3, the claimants obtained and served Mr Brown’s expert report dated 31 March 2015. He had examined daily takings analysis sheets for SHBL’s takings that included sheets in Trigame’s name for 25 of the 27 weeks between 1 November 2007 and 4 May 2008, and calculated that the sums recorded on those sheets were £685,452 (including VAT). No other such sheets have been found for the weeks beginning 14 and 28 January 2008, or for any week after 4 May 2008. The mark 4 version still referred to Mr Brooks’ affidavit and in particular to the discrepancy in the period to June 2008, but its “Schedule of Loss & Damage” included claims by SHBL for “£685,452 as set out in §§4.30 and 13.3-13.5 of the Report of Fred Brown” and for “An amount to be assessed for like heads of loss/damage for the periods for which there are no “Daily Taking Sheets” for [Trigame] as set out in §13.5 of the Report of Fred Brown”. Paragraph 13.5 of the report referred both to the two weeks in January 2008 for which sheets were “missing” and the absence of records from 9 May to 16 October 2008.

[90]However, in the mark 6 version of the pleading the only prayer relating to takings diverted to Trigame was for £685,452. Mr Coppel said that the prayer relating to periods when there are no records was omitted because of a drafting mistake on his part. I accept that, and the mistake would have been apparent to, or at least suspected by, an informed reader: mark 6 was intended to be a version that amended mark 4 only to reflect the decision of Hamblen J, he had not made any relevant decision about this claim, and there was no rational reason to make this alteration between mark 4 and mark 6 deliberately. In mark 7 SHBL kept the claim for £685,452, but sought specifically to plead and to quantify the two weeks Trigame claim and the later Trigame claim. I reject any suggestion that by serving mark 6 as its proposed pleading SHBL abandoned any claim for takings diverted to Trigame other than for the £685,452. Abandonment depends on a party’s intention, and SHBL evinced no such intention.

[91]In my judgment the present mark 2 pleading already covers, albeit inelegantly, the two weeks Trigame claim and the later Trigame claim at least for the period to 23 June 2008. To that extent at least SHBL’s amendments only clarify, in light of Mr Brown’s report, what is already pleaded. Although I see more room for argument, in my judgment the pleading is also broad enough, or if it be preferred vague enough, to cover the remaining period of the later Trigame claim. Mark 2 includes, as well as the specific prayer for relief in the sum of £826,338.96, general prayers for accounts, damages, compensation and other relief. As well as referring to the Brooks affidavit, it pleads in general terms that Mr Georgallides acted in breach of duty “by causing payments to be made to Trigame”, and that as a result SHBL suffered loss and damage for which the defendants are liable to compensate SHBL. The Estate never asked for particulars of these general pleas. I therefore conclude that the present pleading allows SHLB to pursue the later Trigame claim in its entirely and that, here too, the proposed amendment in this regard simply clarifies it.

[92]Even if I be wrong in this conclusion as a matter of strict pleading, the Estate had every reason to anticipate the later Trigame claim, and I cannot accept that it is really prejudiced because of a technical defect in the pleading. Mr Lord complains that the proposed amendment is not properly particularised, but it improves on the present pleading, particulars of which have never been sought, and it is sufficiently pleaded to make SHBL’s allegation clear. I recognise that, as I shall explain, the quantum of the claim requires an extrapolation of the results at the Club over a winter period into the summer period, and this presents some difficulties for SHBL, but I am not persuaded that, as Mr Lord submitted, this is unfair to the Estate because it cannot explore, for example with disclosure from the Fulham Club or through expert evidence, the pattern of takings of nightclubs in different seasons of the year. Nor could I accept, if it be suggested, that the Estate decided not to pursue such lines of inquiry because it was thought that the pleaded claim was limited to the period to May 2008.

[93]Next, the artefacts misappropriation claim: in mark 2 it is pleaded, under the heading “The claim by [SHBL]”, that Mr Georgallides acted in breach of his duties as a director of SHBL “In taking possession and retaining for himself property of [SHBL], namely various Thai artefacts, materials and furniture, valued at approximately £70,000”. The complaint apparently derives from the July report, that I cited at para 51. I considered that these amendments introduce nothing of substance that is not already pleaded, and therefore I allowed them.

[94]I come to the general expenditure claim, and again the starting point is the present pleading, mark 2. A claim for £106,861.96, as I have said, is comprised in the present claim for £826,338.96, and is pleaded in mark 2 (at para 81) as being in respect of these payments from SHBL’s account with Barclays: i) Payments of £82,470.22 between 3 December 2007 and 22 September 2008 by way of direct debit payments and described as “Northern Rock DD [direct debit]”, and “DLA Mortgage – Mr C Georgallides S/O [standing order]”; ii) Payments of £14,155.74 between 3 December 2007 and 6 May 2008 to Mr and Mrs Georgallides and to a “A Georgallides” under standing orders and to a school, apparently for school fees. iii) Payments of £10,236 to a company providing IT consultancy and property management services, which is pleaded as being “for work carried out at Mr Georgallides’ own personal property”.

[95]Mark 2 also includes this pleading:

“The Claimants also claim and will refer to additional payments identified by Mr John Dickinson in his report, a copy of which (less its appendices) is at Appendix 3 of these Particulars of Claim”

. No such report was in fact appended to mark 2, but apparently the Estate did not complain or enquire about this. It is agreed that the reference was to the July report. It is not proper to plead by making vague reference to an imprecisely identified report, and the Estate could properly have required that the pleading be particularised, and probably could have applied to have it struck out as embarrassing, but it did not do so and cannot now complain about the pleading in mark 2.

[96]The general expenditure claim advanced for £157,027 that SHBL now seeks permission to advance derives from Mr Brown’s report, and it includes payments for the following that are already pleaded, either being directly mentioned in mark 2 or identified in the July report: payments to Northern Rock, for a DLA mortgage, for health care, to Mr Georgallides or members of his family, to the school and for a cleaner. The other payments comprised in the £157,027 are these: i) “Company set up costs (Park Asset)”: £14,129. ii) “Peugeot Financial Services”: £3,666. iii) “MBNS Europe and Goldfish”: £23,406. iv) “L B Hammersmith”: £2,772. v) “Hammersmith Fulham Community Tax”: £423. I shall call these the “additional items”.

[97]SHBL sought to introduce the additional items into the claim when it made its application to Hamblen J. There is no proper explanation for them not doing so earlier. All of the payments for the additional items had been made by July 2008. According to Mr Norcross, he learned of the payment of “company set up costs” in April 2008. According to Mr Dickinson, the information about the payment to Peugeot Financial Service, the credit card payments to MBNS Europe and Goldfish and the two payments relating to the LB of Hammersmith are apparent from SHBL’s bank statements. I have hesitated about whether I should refuse permission to amend in relation to the general expenditure claim because it could be said to introduce these additional items, and it is too late to allow that. However, in my judgment, given the vague reference in mark 2 to the July report and general terms in which the July report complains about personal expenditure being met by SHBL, the appropriate course is to regard the whole of the general expenses claim as already pleaded, albeit vaguely. If I am wrong about this, I would consider that CPR 17.4 does not bar the amendment to claim the additional items: if these are new claims at all, they arise out of substantially the same facts as the general expenditure claim that is already pleaded. The Estate is not prejudiced by the additional items being introduced at the trial, and the amendments do not disrupt the trial. Even if these parts of the general expenditure claim are not already pleaded, I would allow these amendments. This will not avail SHBL: as I shall explain, I would not give relief in respect of the additional items even if I upheld other parts of the general expenditure claim.

[98]For similar reasons, I allowed the amendments about the car expenditure claim: I consider that it is already pleaded in mark 2 in that the July report refers to payments in respect of “at least three cars”, but I would in any case allow the amendments.

[99]The other amendments that I have allowed are those about limitation. First, the section 21 limitation arguments. Section 21(1) of the 1980 Act provides that no period of limitation prescribed by it applies to an action by a beneficiary under a trust in respect of any fraud or fraudulent breach of trust to which the trustee was a party, and essentially the proposed amendments introduce allegations of dishonesty to permit an argument that the breaches already alleged were fraudulent, and so a defence of limitation is available to the defendants. For this purpose, amendments to the particulars of claim are not required: as is said in Lewin on Trusts (19th Ed, 2014) para 44-011, “A claimant may refrain froma charge of fraud in the first instance but may wait to see whether the defendant raises a defence of limitation. The claimant must plead fraud in reply and prove it, if he wishes to defeat the defence in that way; the defendant does not have to disprove fraud to establish that the claim is statute-barred”. Realistically it was, I think, always implicit given the nature of the claimants’ complaints that they were fraudulent. Mr Lord accepted that the amendments would not introduce anything which took the Estate by surprise and with which it could not deal.

[100]The other amendments about limitation concern the section 32 limitation arguments. SHBL already pleads in the reply (at para 10.1) that “Mr Georgallides deliberately concealed from [SHBL] facts relevant to its right of claim [which are identified] such that the period of limitation did not … begin to run until [SHBL] discovered or could reasonably have discovered each of those facts, which was not more than 6 years before the date of the joinder of SHBL”. The only possible objection to the amendments about the section 32 limitation arguments is that they might not be necessary, but I shall not refuse them on that basis. As I understand it, Mr Lord rightly accepted that the amendments do not introduce arguments that it could not advance on the present pleadings.

[101]I come to my reasons for refusing permission to make amendments, and start with the SHTL cards claim and the SHTL cash claim, which I take together. SHBL seeks to plead claims for “PDQ amounts paid to SHTL by PDQ machines at Brentwood for the period 30 October 2007 to 2 January 2008: £154,840” and “£26,302 of cash is also paid into the SHTL account between 30 October 2007 and 8 November 2007”. SHBL first sought permission to introduce the SHTL cards claim in the mark 6 pleading (or possibly the mark 5 version, which has not been made available to me) in May 2015, and even there it was not properly pleaded: it simply referred the reader to Mr Brown’s report and Mr Dickinson’s witness statement, and the claim was not included in the schedule of loss and damage to mark 6. The SHTL cash claim was put forward only at the trial. (Mr Brown’s report of 31 March 2015, which was relied on in the mark 6 pleading, referred to cash takings at the Club, as well as card receipts, being paid into the bank account of SHTL, but the pleading specifically referred to diversion of amounts from the PDQ machines: the inference was that no allegation about diversion of cash payments was being made. The very fact that Mr Brown’s report refers to card payments being diverted demonstrates that there is no proper reason that it was not pleaded earlier.)

[102]Mr Coppel submitted that the amendments about the SHTL cards claim and the SHBL cash claim should be allowed because SHBL discovered the facts on which it is based only in January 2015 when Barclays sent Mr Norcross bank statements for SHVL and SHTL, apparently by mistake. Mr Dickinson said that he analysed them only in January and February 2015. If SHBL had applied earlier to introduce these claims, no doubt this evidence would have been explored further, not least because of Mr Norcross’s admitted concerns by the end of 2007 about how SHBL’s business was being run. But even if SHBL did not have the information to plead the claim until early 2015, there is no proper explanation for the delay in pleading these claims thereafter and specifically that it was not included in the application made to Hamblen J.

[103]Mr Lord complained with reason that the proposed new pleading lacked particularity: for example, from which PDQ machines it is said that payments were diverted, about which no disclosure has been made; for example, no credit card receipts or statements from the credit card companies have been disclosed. Moreover, it appears from Mr Brown’s report that funds were being transferred not only from SHBL to SHTL, but also from SHTL to SHBL. In order properly to evaluate the allegation that card payments and cash were improperly diverted from SHBL to SHTL and that this resulted in loss to SHBL, it would be relevant to examine the whole pattern of these transfers. Because SHBL applied to introduce the new claims so late, it was not possible to do so and the Estate could not fairly have been expected to respond to them without an adjournment of the trial: an adjournment was not justified.

[104]The vehicles misappropriation claim: in mark 2 SHBL pleads that Mr Georgallides was in breach of his duties as a director “In taking possession and retaining for himself … property of [SHBL] (or alternatively Newplex or [SHFL]), namely various motor vehicles including a Bentley motor car, a Range Rover motor car and a Harley Davidson motorcycle”. This was also pleaded in mark 6, except there the parenthesis “(or alternatively Newplex or [SHFL])” are omitted. In neither pleading was anything said about the value of the vehicles. Relief was claimed only by way of the general plea of “Damages and/or equitable compensation”. In mark 7 and mark 8, that is to say at trial, SHBL sought to plead that there were “fraudulently appropriated to the use of Mr Georgallides and/or members of his family and never returned” six cars and two motorbikes and that “Total value of motor vehicles as at 16 October 2008: £130,000”. They include a Bentley, a Landrover Sports HSE, and two Harley Davidson motorbikes, and also cars which had not previously been mentioned: a Renault Clio, a Mercedes Benz, a Mini and a Chrysler 300C. In the case of each vehicle an “estimated value at time of misappropriation” is stated. The nature of the complaint, as I understand it, is that when Mr Norcross acquired control of SHBL in October 2008, it did not have possession of the vehicles and it never recovered them.

[105]There is no explanation for these claims not being so pleaded when SHBL was joined in the proceedings. Mr Coppel identified no information that SHBL had lately acquired to explain why the application to make these amendments was made so late. In any case, the vehicles misappropriation claim is not arguable on the evidence. Mr Coppel confirmed that its basis was that SHBL owned the vehicles. Mr Norcross said that he thought that it did because SHTL’s accounts for the period to 31 December 2006 included tangible fixed assets of £11,380 (£14,225 less depreciation of £2,845) in respect of “Motor vehicles”, and he supposed that the vehicles were assets that SHBL had acquired under the Asset Sale Agreement. However, as I have said, the agreement provided that only assets specified in it were transferred. There is no evidence what these vehicles were or that SHTL still owned any motor vehicles by October 2007 or that they were ever acquired by SHBL. In any case, this would not explain how SHBL came to own vehicles worth some £130,000, more than ten times the amount mentioned in the accounts: there was no other evidence from Mr Norcross or any other witness about how SHBL might have acquired them.

[106]There is, however, other evidence about motor vehicles. Mr Coppel referred to various invoices dated in or about February and March 2008 for servicing and repairing the cars, but they were variously addressed to “Sugar Hut” and SHVL, not to SHBL.Mr Smith said that Mr Georgallides used “company funds” to buy and finance cars and two Harley Davidson motorcycles, one for himself and one for Mr Smith; that the cars that were bought included a Porsche and a Range Rover; and that he arranged payments to Ing Leasing for a Bentley and a mini car that had been bought for Mr Simon Grant, the manager of the Fulham Club, and was then given to Mr Georgallides’ daughter. Mr Norcross confirmed that a mini was provided for Mr Grant and then passed on to Mr Georgallides’ daughter, but his evidence about other cars was that SHBL paid for hire purchase agreements for a Bentley driven by Mr Georgallides, for a Range Rover driven by Mrs Georgallides and for a Chrysler for Mr Smith. Mr Smith confirmed that he drove a Chrysler for which SHBL paid, and said that he took it with him when he left because he was owed money. However, Mr Smith said in general terms that Mr Georgallides kept cars when the businesses were sold in October 2008.

[107]This evidence was disjointed and unsatisfactory, but there was no evidence that I accept that SHBL ever owned any cars, nor was there evidence about the value of any vehicles in October 2008 or at any other time, nor was there evidence about the condition of any of vehicles from which their value could be reduced.

[108]I therefore refuse permission for amendments for these claims, and in so far as they are already pleaded, I conclude that they have not been proved.

[109]I refuse permission for the amendments about the settlement condition argument because to my mind it is hopeless, and because it would introduce new issues of fact that could not properly be introduced at the trial in that it would be unfair to the Estate to allow this and because to do so would unacceptably disrupt the trial. I shall explain these reasons further when I come to consider the defence that the claims have been released through the Settlement Agreement.

[110]What of the constructive trust settlement argument? This was first pleaded in mark 4. I must return to the difficulty that no version of the pleading was attached to Hamblen J’s order, and Mr Coppel and Mr Lord were not agreed whether he allowed these amendments. The relevant pleading is in paragraph (5A) of the particulars of the pleading in paragraph 109 of mark 6 that the Estate “is liable to account to [SHBL] and/or [the liquidators] as constructive trustee”. I set out the pleading at paragraph 173below.

[111]Mr Coppel accepted that Hamblen J did not “have paragraph 109(5A) … before him”. In these circumstances, it seems to me improbable that he would have decided to permit the amendment. In any case, it was the claimants’ responsibility to have Hamblen J’s order perfected, and if they failed to do so properly by placing a defective order before him, they cannot, in my judgment, get round their failure by asking me to assume without good reason that the disputed amendment was permitted. In the event, I refuse to allow the amendment because in my judgment there is no prospect that the argument that it would introduce could succeed, but again it is more convenient to explain my reasons further when I consider the issues about the Settlement Agreement in more detail. I observe here only that, if, as I conclude, the argument is in any case hopeless, the dispute about what order Hamblen J intended to make is inconsequential: even if he allowed the amendment, it would not assist SHBL.

[112]I must therefore consider these claims: the Trigame claims (including the two weeks Trigame claim and the second Trigame claim), the artefacts misappropriation claim, the general expenditure claim and the car expenditure claim. Before I come to do so, I should say something about the standard of proof. The allegations are of dishonest breach of duty: it is well established that generally "cogent evidence is required to justify a finding of fraud or other discreditable conduct", per Moore-Bick LJ in Jafari-Fini v Skillglass Ltd.,

[2007] EWCA Civ 261

at para.73. This principle reflects the court's conventional perception that it is generally not likely that people will engage in such conduct:

"where a claimant seeks to prove a case of dishonesty, its inherent improbability means that, even on the civil burden of proof, the evidence needed to prove it must be all the stronger", per Rix LJ in Markel v Higgins, [2009] EWCA 790 at para 50. The question remains one of the balance of probability, although typically, as Ungoed-Thomas J put it in In re Dellow's Will Trusts, [1964] 1 WLR 415,455 (cited by Lord Nicholls in In re H, [1996] AC 563 at p.586H), "

The more serious the allegation the more cogent the evidence required to overcome the unlikelihood of what is alleged and thus to prove it". However, this principle is applied flexibly because it depends upon the improbability of the specific allegation that is made and the particular circumstances of the case. In some cases, the improbability can be such that the civil standard is akin to the criminal standard of proof beyond reasonable doubt (R (McCann) v Crown Court at Manchester,

[2003] 1 AC 787

at para 37 per Lord Steyn and para 82 per Lord Hope), but this is not invariably so. Thus in the Jafari-Fini case at para 49, Carnwath LJ recognised an obvious qualification to the application of the principle, and said, "Unless it is dealing with known fraudsters, the court should start from a strong presumption that the innocent explanation is more likely to be correct".

[113]I did not have submissions from counsel about the standard of proof, or the application of this principle to the facts of this case. I make two observations: first, SHBL does not need to demonstrate dishonesty in order to prove its claims. It might be that the very nature of at least some of the allegations would suggest impropriety on Mr Georgallides’ part but dishonesty is not an ingredient of the causes of action alleged. The allegations of dishonesty are made, I think, only, or at least mainly, in order to meet the limitation defence raised by the Estate. Secondly, as I shall explain, I am driven to conclude that SHBL was involved in evasion of VAT, that Mr Georgallides was involved in the evasion and that he was being dishonest. This raises a question whether I should assess SHBL’s allegations of dishonesty as being as inherently improbable as they would have been in other circumstances. I am not convinced that the standard of proof should be lowered: to my mind it is not self-apparent that a person who evades tax is more likely than others to be dishonest to those with whom he does business. However, in the absence of argument about this, I shall decide SHBL’s allegations applying what might be terms the “normal” standard of proof, disregarding any inherent improbability that Mr Georgallides was dishonest or acted improperly. Since I conclude that evidence does not prove SHBL’s allegations to this lower standard, this approach does not affect my conclusions.

[114]It is convenient to take first the artefacts misappropriation claim, which is really pretty straightforward. SHBL alleges that(i) SHBL had artefacts, furnishings and other property,

(ii) their value was some £70,000, and

(iii) they were misappropriated by Mr Georgallides. The allegation can be traced back to the July report, in which Mr Dickinson recorded that Mr Norcross had informed him that Mr Georgallides had spend approximately £70,000 in Thailand on artefacts, materials and furniture, and the assets “never ended up in any of the trading companies”. This account does not indicate who paid for the goods, but the suggestion is that “trading companies” in the Group should have had them. Moreover, although according to the July report nothing had then been taken to the Club, Mr Norcross said in cross-examination that by 16 October 2008 there were “new artefacts” there. He said that it was because of this that he “assumed” that SHBL had paid for goods that Mr Georgallides had acquired in Thailand.

[115]However this may be, the only evidence that might be remotely relevant to the artefacts misappropriation claim about Thai goods is this: Mr Norcross said that Mr Georgallides would travel to Thailand to buy ornaments and furnishings for the clubs. He did not know who paid for them, and accepted that Mr Georgallides “could have” done so. He also referred to an invoice for the import of some artefacts which was paid for by SHVL, one of Mr Georgallides’ companies. Mr Dickinson simply said that documents show Thai artefacts and memorabilia were bought with “company money”, and he understood that they were used to furnish the Club. However, there is no dispute that there were Thai furnishings and ornaments and the Club, and I cannot rely on this part of Mr Dickinson’s evidence. The claim is not assisted by Mr Smith’s evidence that Mr Georgallides had Thai artefacts in his home. The evidence falls far short of a proper basis for bringing and pursuing the artefacts misappropriation claim, let alone proving it.

[116]I do not overlook that Mr Norcross also referred in his witness statement to an email that was sent on 19 May 2010 from a business called Antiquities of Las Vegas: it refers to memorabilia said to have been bought in late 2007 and early 2008 by Mr Georgallides with SHBL’s funds. He said that the total cost was $69,000 (which he said, surely in error, was the equivalent of £64,500). He also referred to a valuation of then in 2010 of $129,125. Mr Norcross said that some of these items went to the Sky Bar, but others, worth $34,525 (it is unclear whether at cost or 2010 values) to Mr Georgallides’ home. Mr Smith said that in 2008 Mr Georgallides went to Las Vegas to buy memorabilia for the Sky Bar, and that Mr Georgallides told him that he had spent $100,000: he said that Mr Georgallides had many of these goods in his home. As I understand it, although referred to in the July report, no claim is brought is respect of these items: certainly until the mark 6 version of the pleading the claim for £70,000 was pleaded to be in respect of “various Thai artefacts, materials and furniture”. In any case, in my judgment the evidence is too vague to support a claim for memorabilia from Las Vegas.

[117]In order to assess the other claims, I should first say something about how the Group was managed after October 2007. I conclude from the evidence that Mr Georgallides was injecting substantial funding into the Group of his own and via his companies, SHTL and SHVL. I accept Mr Lord’s submission that, after the October 2007 agreements and the payments pursuant to them, there remained outstanding to Mr Georgallides or his companies some £350,000 or more from the Group. The consideration that was to be paid for the assets and the shares was £1 million, plus the value of stock at the Club and the Fulham Club. It was to be funded by a £200,000 facility that Barclays was to provide to SHBL and £800,000 paid in respect of Mr Norcross’s investment. The £800,000 was paid to SHGL, albeit via SHTL. The bank statements of SHGL show that it paid £350,000 to BBL and £10,000 apparently to Mr Georgallides: I infer that this was by way of consideration for the shares of Ramos, Willow and CGIP.It also shows that £290,000 was paid to SHTL, which I would take to be a payment for the assets. There is no evidence that SHGL paid the remaining £350,000 for assets, nor that anything was paid for the stock: although the position is not wholly clear, the most likely conclusion is that this remained owing from the Group to SHTL.

[118]There is also evidence that Mr Georgallides was providing other support for the Group, including SHBL, through his companies. SHTL paid £130,000 in October and November 2007 to Jedi Management Limited for work at the Sky Bar. Barclays’ letter of 5 February 2008 is further evidence that Mr Georgallides was providing funding for the Group. SHBL’s management accounts for the period to 30 June 2008 recorded directors’ loans, most of which can only have been from Mr Georgallides. The Hacker Young “Financial Review Report” records directors’ loans, which again must have been made by Mr Georgallides.

[119]Mr Norcross knew about this funding generally and in particular that Mr Georgallides and his companies were funding the development of the Sky Bar: he cannot have thought that NPL and NTL were in a position to pay for it. Although in cross-examination Mr Norcross described what he called “fairly loose arrangements” whereby he “was funding certain parts of it … and a colleague of mine was funding certain parts of it”, there is no evidence that he (or a “colleague”) paid for a major part of the development costs. Mr Georgallides’ contribution was obvious to him. In any case, Mr Norcross countersigned the Barclays letter of 5 February 2008 to accept the loan facility on behalf of NTL for the purpose of repaying Mr Georgallides. Although in cross-examination he was unwilling to accept that he knew what he was signing, I have no doubt that he did. I also reject his evidence that he “may have” questioned at the time whether Mr Georgallides was entitled to be repaid from the Barclays loan. He knew that there was to be what he called a “reckoning at the end of the day” in which Mr Georgallides and his companies were to be reimbursed.

[120]Further, Mr Brown gave evidence of payments to SHBL by SHTL and SHVL: on 20 December 2007 £42,111.67 was paid by cheque from SHTL; on each of 9, 10 and 11 January 2008 £25,000 was transferred from SHTL; and on 13 March 2008 £20,000 was transferred from SHVL. Mr Brown observed that these payments did not apparently relate to any receipts at the Club that might have been paid into the account of SHTL or SHVL, and he was not able to explain them. Mr Brown also observed that between 8 November 2008 and 30 April 2008 there was paid into SHBL’s account a total of £175,576.70 by way of deposits of cheques or cash, and he was unable to identify its source. It is clear that funding was being transferred into SHBL from Mr Georgallides’ companies, and possibly elsewhere.

[121]Before coming to the allegations about Mr Georgallides using SHBL’s funds to meet his own and his families expenses, I should mention two other features of the way the Group operated. It is clear that SHBL, and I would suppose the other operating companies, paid expenses by cash out of the takings. As I have said, Mr Smith told me that this is how the Club operated before Mr Norcross invested in the Group, and Mr Norcross observed it in September 2007 when he visited the clubs. Mr Smith (or rather a company which invoiced for his services) was paid in cash. So too, Mr Smith told me, were bar and security staff and disc jockeys. This money was simply taken from the cash receipts at the Club. This is confirmed by manuscript notes on some of the records that are in evidence that show that there were substantial cash payments for wages and by way of “petty cash”.

[122]I take next the general expenditure claim and the car expenditure claim, which I consider together. There is no dispute that SHBL made some payments which were not for its own benefit but for the benefit or Mr Georgallides and his family, nor that Mr Georgallides was responsible for them being made. However, I consider that SHBL has included in those claims items which were for its benefit: at least there is no evidence to the contrary. Thus: i) The car expenditure claim includes monthly payments, apparently hire charges, of £6,663 between November 2007 and July 2008 in respect of a Bentley, which was used by Mr Georgallides. There is no evidence whether he used it for the purposes of the business or that it was wholly for private use. There is nothing inherently improper or unusual about a company providing a car for its chairman, nor is it obvious to me that it would have been improper for SHBL to provide Mr Georgallides with an extravagant car given that its perceived glamour might benefit a nightclub business. ii) The car expenditure claim also includes monthly payments, again apparently hire charges, of £3,073 between November 2007 and June 2008 for a Chrysler. I understand from the evidence that it was used by Mr Smith, and this is corroborated in that the payments ceased at about time that Mr Smith left SHBL. I reject the allegation that the expenditure was personal to Mr Georgallides. iii) The general expenditure claim includes monthly payments between November 2007 and October 2008 of £2,385 to “NU Healthcare No1”. I infer this was for insurance for medical costs, but there is no evidence who were insured. Many companies provide such benefits for employees, and there is no sufficient evidence to show that the expenditure was improper. iv) The general expenditure claim also includes monthly payments between November 2007 and February 2008 of £3,666 to Peugeot Financial Services. The obvious inference is that they were in respect of a Peugeot car: it is not explained why they were not included in the car expenditure claim. Mr Dickinson said that “Based on the documents that I have examined and the information that I have received from Mr Norcross” the only reasonable explanation is that the payments were “made by [Mr Georgalldies] with company funds in respect of a car that he has purchased for someone”. There is no evidence for whom the car was bought or whether it was used by a Club employee or for Club business. v) There are also payments of £23,406 between December 2007 and June 2008 to MBNA Europe and Goldfish, which were clearly for use of credit cards. There is no evidence about whether they were used for private purposes or for purchases for SHBL.

[123]Finally there were payments shown on bank statements as being to “L Hammersmith &” and to “Hamm Fulh Ctax” for £2,772 and £423 respectively. Apparently they were payments to the London Borough of Hammersmith & Fulham. Mr Dickinson acknowledges that the first could be in respect of the Fulham Club, and there is no reason to think otherwise: certainly it has not been shown to relate to the personal expenditure. (On the face of it, it would be expected that SHFL would pay such expenses, but no complaint was pleaded or pursued on that basis.) Of the smaller of these payments, Mr Dickinson said that “Based on the documents that I have examined and the information that I have received from Mr Norcross, I presume this payment is in respect of a residential property that Mr Georgallides owns in the borough”. I do not know what documents and information he relied on, but in my judgment this is no more than speculation. Mr Smith said that Mr Georgallides owned a flat in Fulham opposite the Sugar Hut club there. If the payments related to that flat, the purpose of the flat, I would suppose, be for his work there.

[124]If these items are omitted, the total value of the general expenditure claim and the car expenditure claim is reduced from £172,360 to £131,467.

[125]The explanation that Mr Georgallides gave Mr Norcross for these payments was that SHBL was indebted to him, and, as was clearly implied, the payments were being made in order to repay the debt. (I accept that part of Mr Norcross’s evidence, but do not consider reliable his evidence that Mr Georgallides at first denied knowledge of the payments: it would have been senseless for him to do so.) This is consistent with a letter to the Insolvency Service dated 8 March 2010 in which AOG wrote that, while they did not have “details of directors accounts”, they were aware that: “As part of the purchase agreement between Mr. Georgallides and Mr. Norcross, Mr. Georgallides provided significant funds to the group in order to finance the acquisition and fitting out costs of the “Sky Bar” premises. Those funds were to be repaid to him from the proceeds of loan finance arranged by the group and from a cash injection promised by Mr. Norcross. As a result Mr. Georgallides built up substantial credit balances within the group overall including the trading companies. Mr. Georgallides drew against these credit balances on a monthly basis via standing orders and direct debits which paid for personal expenses. At the time of Mr. Georgallides sale of his interest in the Sugar Hut Group of companies he believed he was owed in excess of £200,000 by the group. As part of the settlement agreement between all the parties Mr. Georgallides waived his rights to this indebtedness due to Barclays Bank. In consideration of this waiver and payment by Mr. Georgallides he was released from any liability or claims from Sugar Hut Group and its subsidiaries and he was indemnified from any claims made by Barclays Bank in respect of any personal guarantees given by him to Barclays Bank”.

[126]Mr Coppel invited me to reject this explanation and to infer that the payments were improper and dishonest because the Estate did not adduce contrary evidence and from the absence of documents. I have already explained why I do not draw an inference adverse to the Estate on the basis that, in particular, Ms Lee did not give evidence. I also decline to draw any inference from the absence of documentation about directors’ loans, and I reject Mr Coppel’s submission that relevant documents were destroyed or concealed by Mr Georgallides. There is no suggestion that it was Mr Georgallides’ responsibility within SHBL to maintain accounting records: for most of the relevant period Mr Norcross and he were both directors. When Mr Norcross was asked how his loan of £60,000 was recorded, he said that he did not know but that he “would have thought that the bookkeeper [Ms Lee] would have informed the accountants to record it”. My impression, consistent with Ms Larman’s report, is that the book-keeping was pretty chaotic, but if the records were inadequate, I do not understand why that should have been the responsibility of Mr Georgallides rather than Mr Norcross. In any case, there is no satisfactory evidence that there were not relevant records: the contents of the sealed black bags that AOG handed over after the Settlement Agreement were, as far as the evidence goes, not inspected.

[127]I therefore conclude that the general expenditure and the car expenditure claims have not been proved and I reject them.

[128]I come to SHBL’s allegation that Mr Georgallides was responsible for diverting club receipts to Trigame. Trigame was incorporated on 1 September 2006, being formed by AOG for Mr Georgallides. Its only shareholder and only director was Mr Georgallides, and its registered address was AOG’s offices. According to Mr Nicolaides, it was intended to operate a website for gaming and gambling that Mr Georgallides planned, but the plan never materialised, and Trigame remained dormant until it was dissolved on 23 June 2009. Mr Nicolaides said that AOG never provided any services beyond submitting annual returns to Companies House: no accounts were ever filed. He also said that, as far as he knew, Trigame “never owned any assets and it never operated or opened a bank account”. However, on the second day of the trial, the Estate disclosed a paying-in book for an account at Barclays’ Chingford branch in the name of Trigame: Mrs Georgallides said that she had had happened upon it by chance the previous evening, and I accept her evidence. It was unused, and, although Mr Nicolaides was clearly wrong about Trigame not having a bank account, otherwise I accept his evidence about the company. I also accept his evidence that, when enquiries were made about the account to which the paying in book was found, Barclays told AOG that the account was dormant.

[129]SHBL’s Trigame claims are based on daily takings sheets for the Club that were completed in the period from the week ending 4 November 2007 to the week ending 4 May 2008. (Mr Dickinson said that he has seen Trigame takings sheets “for the 24 October 2007 to 1 June 2008 period”, but the records that were in evidence did not continue after the first few days of May. This part of Mr Dickinson’s evidence was not examined at the trial, and Mr Coppel did not rely on it. I do not think it reliable.) For each week except for two (seven day periods beginning 14 and 28 January 2008), two sheets were completed: one appeared to record the takings of SHBL, but the other referred to Trigame. I can use the records for the Club takings on 11 April 2008 as an example to illustrate this. The tills records show takings totalling £8,418.63. There were two daily takings sheets covering 11 April 2008. One was headed “Division: S H Trading (UK) Brentwood”, and it covered 7 to 13 April 2008, with recorded takings of £3,844.13 for 11 April 2008, and the other was headed “Division: Trigame Leisure Limited”, and it covered 9 and 11 to 13 April 2008 with recorded takings of £4,574.50. Thus, the total of the two daily takings sheets (to which I shall refer as the “SHBL sheet” and the “Trigame sheets” respectively) corresponds to the till receipts. There is also in evidence a spreadsheet for 11 April 2008 showing £3,844.13 as the total receipts for “down”, that is to say the downstairs bars and restaurant at the club, and £5,574.50 as the total for “up”, the upstairs bars. Again, these correspond, allowing for minor and understandable discrepancies, to the tills receipt records. The records for other days show a similar pattern.

[130]The records were examined by Mr Brown. He explained that the information on takings would be expected to flow from the cash-up documents for each till, to summary sheets for each day and then the individual day taking sheets, the daily taking analyses (or weekly sheets), and monthly taking analyses. This information would then be used for drawing up VAT returns and, using Sage systems, management accounts.

[131]Mr Brown had available to him the two daily takings sheets to which I have referred. He said that most of the receipts recorded on the Trigame sheets were in cash, but on 10 days there were small amounts by way of card receipts, all less than £200. This is reflected in discrepancies between the amounts for PDQ receipts that the daily taking analyses record and the amounts credited to SHBL’s bank account.

[132]In a letter dated 29 April 2010 to the Insolvency Service Mr Nicolaides wrote that the use of the form with the name of Trigame that Mr Dickinson found in September 2008 was “simply a case of misuse of a form by the bookkeeper. Instead of selecting a Sugar Hut Brentwood spreadsheet, she selected one that had been created by Trigame”. In his evidence Mr Nicolaides explained that he had been advised that Ms Lee had made this mistake. I do not doubt that this was Mr Nicolaides’ understanding (whether from Ms Lee or someone else), but cannot accept his explanation: there were too many Trigame sheets for it to be credible.

[133]Mr Brown had available to him only two monthly takings analyses, for April 2008 and May 2008. He observed that they reflected only the takings recorded in SHBL’s name. He also observed the daily taking analyses for February, March and April 2008 on the sheets in the name of SHBL alone matched the figures used for the VAT return for that period. I add that Mr Brown observed that in the management accounts for the period to 30 June 2008, the only set of management accounts that are available, the total sales are less than the total sales recorded in the daily taking analyses in the names of SHBL and Trigame.

[134]It is, I conclude, clear that the VAT returns made by SHBL for at least some seven months from 24 October 2007 record only the receipts at the Club that were booked for the downstairs restaurant and bars on the “Division: S H Trading (UK) Brentwood” sheets, and not the receipts booked for the upstairs bars on the “Division: Trigame Leisure Limited” sheets. Thus, for the period from 24 October 2007, approximately when SHBL started to trade, to 31 January 2008 the downstairs receipts were £365,949.48 in total, and the period from 1 February 2008 to 30 April 2008 the downstairs receipts were £324,650.66 in total. SHBL’s VAT returns for those periods, signed by Mr Norcross and Mr Georgallides respectively, understated the total receipts for SHBL in those amounts.

[135]Mr Coppel submitted that I should infer that the sums taken upstairs at the Club and recorded on the Trigame sheets were diverted by Mr Georgallides to his company Trigame: his argument was that there was no other reason to record these sums on the sheets in Trigame’s name, and that there was no evidence that the takings were used for the purposes of the Club or received by SHBL. That, he argued, is sufficient to shift the evidential burden to the Estate to provide an explanation to refute this inference.

[136]I do not accept this argument: Mr Smith said that the downstairs takings and the upstairs takings might have been distinguished for historical reasons because at first the Club operated only on one floor: certainly there is no reason to think that this practice was first introduced when Mr Norcross invested in the Group, and before then there would have been no reason to divert funds from the operating company for the club. I am driven to conclude that, whether or not this was the original reason for the upstairs receipts being recorded separately, it was used to evade accounting to HMRC for the value added tax on them. Mr Georgallides must have been party to the evasion. It does not follow that the receipts were not used for SHBL’s purposes. On the contrary, I conclude that some of them were used to pay expenses in cash: that is the implication of the manuscript notes on the reverse of Trigame sheets, and was confirmed by Mr Smith’s evidence.

[137]Moreover, Mr Brown identified other credits to SHBL’s bank account that were not from the downstairs takings recorded on the SHBL sheets: in his report he referred to credits of some £150,000 in total, but in cross-examination he accepted that, “£213,000 has found its way into [SHBL’s] bank account, and [he could not] attribute it to takings according to the Brentwood sheets”. The only other explanation for these credits to the bank account (although this was not one advanced by Mr Coppel) is that Mr Georgallides was injecting funds into SHBL, but I consider that it would be fanciful to suppose that he was diverting receipts into his company Trigame only to inject funds back into SHBL. I recognise that Mr Brown concluded that there is no discernible correlation between the timings of the funds being deposited in SHBL’s bank account and the timings of the takings on the Trigame sheets. Nevertheless, I conclude that the deposits came from receipts that were taken upstairs at the Club and banked, maybe not always immediately, into SHBL’s account. Indeed, this is corroborated because one of the credits to the account that Mr Brown identified was on 7 April 2008 and was for £11,000. Manuscript notes on the back of Trigame sheet for the previous week to Sunday 6 April 2008 included that of the receipts of £25,536.95 was “owed to Mick” and £11,000 was “banked”.

[138]Nor was I any more impressed by the argument about the absence of documentation than with the other claims: if Mr Georgallides had sought to destroy or conceal records about funds going to Trigame, the 24 Trigame sheets would not have survived.

[139]I am therefore not persuaded that receipts at the Club were diverted from SHBL to Trigame (or elsewhere), SHBL has not proved that Mr Georgallides was involved in any such practice and I reject the Trigame claims. This conclusion is supported, to my mind, by two other considerations: i) In the first half of 2008 Mr Georgallides was abroad for some two weeks and then for some two months during which he is said nevertheless to have been responsible for these defalcations. It is conceivable that he had left the scheme to be operated by others in his absence, but this seems improbable: the risk that in his absence Mr Norcross would have learned what was happening would have been obvious, and it seems to me far-fetched to think that Mr Georgallides would have taken it. ii) Secondly, the Trigame sheets were not, apparently, concealed. Mr Dickinson found one in a “file” that was made available to him on 5 September 2008. Indeed, I find it hard to think that, if Mr Georgallides diverting funds on the scale that SHBL allege, that he would keep records (or allow records to be kept) bearing the name of Trigame at all.

[140]I therefore reject the Trigame claims. I add only this: the amounts of SHBL’s claim in respect of the two weeks Trigame claim and the later Trigame claim, for which no records are available, are extrapolated from the weeks for which records are available. If I had upheld these claims in principle, I would have made some reduction to take account of Mr Smith’s evidence that January is a “poor time of trading” for nightclubs, and that takings are higher in winter than in summer. In view of my other conclusions I do not need to assess the appropriate reductions.

[141]I shall, however, go on to consider the Estate’s defence under the Settlement Agreement.

[142]The background to the Settlement Agreement was the Companies Court litigation and the disputes between Mr Georgallides and Mr Norcross that had led to it. Mr Georgallides entered into it with the advice of Rochman Landau, and Mr Norcross was advised by Thomas Cooper LLP, the solicitors who act for him in this litigation, and Mr Day. There were 16 parties, designated “the Georgallides parties”, “the Norcross Parties”, “the Dubai parties” and “the Sugar Hut Parties”. It used the expression “the Georgallides parties” to refer to Mr Georgallides and QHL, the expression “the Sugar Hut Parties” to refer to the Group, including SHBL, and the Norcross Parties were Mr Norcross and NIL. The Dubai parties were the Dubai companies, VCL, Moat, and Damask and also Mr Barron.

[143]The recitals to the Settlement Agreement referred to certain disputes, which were called “the Specified Claims”, but said that there were other disputes between the parties to the Settlement Agreement. The Specified Claims included claims by the Dubai parties, which are described as follows:• “Mr. Barron’s claim that it loaned the sum of £170,000 to Mr. Georgallides”;

• “Damask’s claim that it loaned the sum of £1,285,000 to Mr. Georgallides”;

• “Venture’s claim that it loaned the sum of £350,000 to Mr. Georgallides”; and

• “Moat’s claim that it loaned the sum of £895,000 to Mr. Georgallides”; They also included “the claim of Mr Norcross and/or Newfund that Mr Georgallides and/or QHL conducted the affairs of any of the Sugar Hut Parties (whether as director or shareholder or otherwise) in a manner which could give rise to legal redress against any of them” and “the claims by any of the Sugar Hut Parties against Mr Georgallides for misfeasance and/or any other claims against him”. The recitals continued as follows: “Mr Georgallides alleges that he is owed the sum of c. £200,000 by certain companies within the Sugar Hut Parties (“the Alleged Director’s Loan”). The Norcross Parties and the Dubai Parties having no means of verifying the loan, make no admission as to whether or not the Sugar Hut Parties have received such a loan or any part thereof. “The parties have agreed to settle all claims between them whatsoever and howsoever arising whether existing or prospective and whether apparent or not (but shall exclude any claims to enforce any rights arising out of this Agreement). For the avoidance of doubt, the claims being settled shall include (but not be limited to) the Specified Claims, claims in contract, tort, statute, common law, equity or otherwise”.

[144]The Settlement Agreement set out various releases from liability (in clause 1) and releases of rights (in clause 2), as follows: “1 Release from Liability1.1 Save for any liability arising under this Agreement, the Georgallides Parties hereby formally release the Norcross Parties, any and each of them, from any Liability whatsoever and the Norcross Parties hereby formally release the Georgallides Parties, any and each of them, from any Liability whatsoever.

1.2 Save for any liability arising under this Agreement, the Dubai Parties hereby formally release the Georgallides Parties, any and each of them, from any Liability whatsoever and the Georgallides Parties hereby formally release the Dubai Parties, any and each of them, from any Liability whatsoever.

1.3 Save for any liability arising under this Agreement, the Sugar Hut Parties hereby formally release the Georgallides Parties, any and each of them, from any Liability whatsoever and … the Georgallides Parties hereby formally release the Sugar Hut Parties, any and each of them, from any Liability whatsoever. 2. Release of any rights

2.1 The Georgallides Parties, any and each of them, release and waive any rights which they or any of them may have against any of the Norcross Parties, the Dubai Parties and … the Sugar Hut Parties and covenant and undertake in favour and for the benefit of each of the Norcross Parties, the Dubai Parties and Sugar Hut Parties not to make or maintain any action or claim of any kind whatsoever except for any rights arising our of this Agreement.

2.2 The Norcross Parties, any and each of them, release and waive any rights which they or any of them may have against any of the Georgallides Parties and covenant and undertake in favour and for the benefit of each of the Georgallides Parties not to make or maintain any action or claim of any kind whatsoever except for any rights arising out of this Agreement.

2.3 The Dubai Parties, any and each of them, release and waive any rights which they or any of them may have against any of the Georgallides Parties and covenant and undertake in favour and for the benefit of each of the Georgallides Parties not to make or maintain any action or claim of any kind whatsoever except for any rights arising out of this Agreement.

2.4 The Sugar Hut Parties, any and each of them, release and waive any rights which they or any of them may have against any of the Georgallides Parties and covenant and undertake in favour and for the benefit of each of the Georgallides Parties not to make or maintain any action or claim of any kind whatsoever except for any rights arising out of this agreement.

[145]Clause 3 was headed “Legal Pre-Condition”, and it provided that:

“This Agreement is conditional on the subject to:- 3.1.1 the payment by Mr. Georgallides to the Sugar Hut Parties of £300,000 (which shall be applied by the latter in reduction of their indebtedness to Barclays Bank Plc); 3.1.2 Quefront and Newfund entering into a share sale agreement of even date on terms agreed between them; and 3.1.3 the banking of all takings unaccounted for since 24 September 2008 of the Sugar Hut Parties into each of the relevant company’s bank account and/or the Company’s bank account as soon as reasonably practicable after completion”

. The “Company” was SHGL.

[146]Clause 7.1 of the Settlement Agreement provided as follows: “The parties agree to construe the terms of this Agreement as widely as possible in order to give effect to the commercial objectives of achieving a full, final and comprehensive settlement between them”.

[147]Mr Lord submitted that the Settlement Agreement is drafted in wide terms and covers the claims that are being pursued in these proceedings referring particularly to the recitals, the terms of the releases and clause 7.1. He said that there is no proper reason to limit its application or to exclude from it any of SHBL’s claims. After all, he argued, under the Settlement Agreement Mr Georgallides was to pay £300,000 and to relinquish all claims to recover what was owed to him by the companies in the Group by way of director’s loans, which he said was about £200,000: this was the price that he paid to be free of all claims against him in relation to the Group. Mr Coppel, however, submitted that SHBL’s claims arise from dishonesty and “sharp practice” on the part of Mr Georgallides, and are not covered by the Settlement Agreement.

[148]The leading case on the interpretation of agreements of this kind is the decision of the House of Lords in Bank of Credit and Commerce International SA v Ali,

[2001] UKHL 8

. It concerned agreements that the claimants, Bank of Credit and Commerce International SA (“BCCI”), had made with employees whom it had made compulsorily redundant. In consideration of a payment, the employees accepted terms that were said to be “in full and final settlement of all or any claims … of whatever nature that exist or may exist” against BCCI. After BCCI went into liquidation, it was widely publicised that its business had been conducted dishonestly and corruptly. When sued for outstanding loans, employees brought counterclaims in misrepresentation and breach of contract, alleging that they were at a disadvantage in the labour market because of how BCCI had conducted its business.

[149]The House of Lords decided that the terms of the settlements did not preclude such counterclaims for what Lord Bingham called “stigma damages”. In his speech, Lord Bingham, with whom Lord Browne-Wilkinson agreed, said (loc cit at para 8) that the issue required the courts to ascertain the intention of the parties from the terms of the contract as a whole, giving the words their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties. However, he then referred to a “salutary line of authority [that] shows that, in the absence of clear language, the court will be very slow to infer that a party intended to surrender rights and claims of which he was unaware and could not have been aware”. He therefore concluded that the parties did not intend the settlement to cover claims for stigma damages.

[150]Most of the authorities in the line to which Lord Bingham referred, and in places Lord Bingham in his speech referred, to the parties being taken to have intended to settle only claims that were known to them. However, he did not, I take it, mean that the parties must have known that there was a valid claim: what matters is surely that the parties contemplated that a claim might be made. For example, the authorities cited by Lord Bingham include these: i) (at para 12) in Lyall v Edwards, (1861) 6 H&N 337 Pollock CB said at p.347, “It is a principle long sanctioned in court of equity, that a release cannot apply, or be intended to apply to circumstances of which a party had no knowledge at the time he executed it, and that if it is so general in its terms as to include matters never contemplated, the party will be entitled to relief”. ii) (at para 13) in Directors of the London and South Western Ry Co v Blackmore, (1870) LR 4 HL 610 Lord Westbury said at pp.623-624, “The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given. But a dispute that had not emerged, or a question that had not at all arisen, cannot be considered as bound and concluded by anticipatory words of a general release”. (I have added the italicised emphases.)

[151]Accordingly, the factual basis for Lord Bingham’s decision was that, even though BCCI through its senior employees was fixed with knowledge of its “insolvency and nefarious practices”, neither it nor the employees could have “supposed that such a claim [as that for stigma damages] lay within the realm of practical possibility” (at para 19). Similarly Lord Clyde (at para 86) said that “The stigma claim is one which neither party could have contemplated even as a possibility as the law stood at the time when the agreement was made”. Lord Nicholls, the other member of the Committee in the majority (because Lord Hoffmann dissented, not on the principles of interpretation but their application to the particular case) speaks of the issue as concerning “a claim which subsequently came to light but whose existence was not known or suspected at the time the release was given”.

[152]The interpretation of the Settlement Agreement, therefore, depends on what was known to “the parties” or was within their contemplation. The term “the parties”, when used in the BCCI case and in the authorities cited by Lord Bingham, means the parties to the settlement or the release, not the parties to the litigation or the dispute that gave rise to it. In this case, there were the sixteen parties to the Settlement Agreement, although in reality it was essentially the settlement of a dispute between Mr Georgallides and Mr Norcross.

[153]It is obvious, I think, that Mr Norcross and Mr Georgallides knew the nature of Mr Norcross’s complaints and allegations: that Mr Georgallides was responsible for misappropriating property of the companies in the Group, using company funds to pay personal expenses and diverting funds from the companies to himself. I need only refer to the July report, Mr Norcross’s statement of 8 September 2008, Ms Foley’s submissions and the correspondence with Barclays. Mr Coppel relied on Mr Norcross’s evidence that he did not know the“systemic fraud that Mr Brooks eventually identified” and “the true extent of the frauds”. That does not matter: in the BCCI case Lord Nicholls emphasised (at para 27) that: “The parties wanted to achieve finality. When, therefore, a claim whose existence was not appreciated does come to light, on the face of the general words of the release and consistently with the purpose for which the release was given the release is applicable. The mere fact that the parties were unaware of the particular claim is not a reason for excluding it from the scope of the release. The risk that further claims might later emerge was a risk the person giving the release took upon himself. It was against this very risk that the release was intended to protect the person in whose favour the release was made”.

[154]The knowledge of Mr Norcross is attributable to NIL, the other Norcross party to the Settlement Agreement: Mr Norcross signed the Settlement Agreement on its behalf. It was signed on behalf of the two Georgallides parties and the eight Sugar Hut parties by an agent exercising a power of attorney. Although there was no direct evidence about this, I infer that the agent acted on the instructions of Mr Georgallides, and Mr Georgallides’ knowledge and intentions are to be imputed to these corporate parties. Of course, if Mr Georgallides was defrauding SHBL or any of the other companies, his knowledge of that would not be attributed to that company, but that is beside the point: what matters is knowledge of Mr Norcross’s complaints and allegations, not of the substance (if any) behind them.

[155]Three of the four Dubai parties, Damask, VCL and Moat, executed the Settlement Agreement though two of their officers, who have not been identified in the evidence (and whose signatures on the Settlement Agreement itself I cannot read). Again there is no direct evidence about the circumstances in which they did so, but I infer that they were instructed to do so by Mr Norcross: he said that the companies paid funds to Mr Georgallides and Recentrica “on my behalf”, and there was no suggestion at trial that they were anything other than his instruments.

[156]Mr Barron signed the agreement on his own behalf. There was little reference to him in the evidence, and no evidence of his involvement in discussions that led to the Settlement Agreement. I infer that he was closely associated with Mr Norcross, not only because Mr Norcross described him as his business associate and friend but also because, as it appears from the recitals to the Settlement Agreement, he apparently subscribed to Mr Norcross’s (strange) view that the sums invested were by way of loans to Mr Georgallides. Neither Mr Coppel nor Mr Lord attributed any importance to Mr Barron being party to the Settlement Agreement, or suggested that this affects how it should be interpreted. I think that they were right not to do so.

[157]I do not infer that Mr Barron actually knewwhat complaints and allegations had been made and what concerns had been expressed by Mr Norcross with regard to Mr Georgallides’ dealing with the Group generally and SHBL in particular: there is no sufficient basis to do so. Read literally, some judicial statements might suggest that, when interpreting a contract, the court can have regard only to matters known to all the contracting parties: see, for example, Lord Russell in Hvalfangerselkapet Polaris A/S v Unilever Ltd,

(1933) 46 Lloyd’s Rep 29

, 40; and Lord Phillips in Oceanbulk Shipping & Trading SA v TMT Asia Limited,

[2010] UKSC 44

at para 48. This is reflected in the formulation of the principle stated in Lewison, The Interpretation of Contracts (5th Ed. 2011) at para 3.17:

“In construing any written agreement the court is entitled to look at evidence of the objective factual background known to the parties at or before the date of the contract. …”

. Generally, the knowledge of one party, or some of the parties, is not in itself relevant to assist its interpretation, that is to say to ascertain the presumed mutual intention of both or all of them.

[158]However, although the law has apparently developed differently in Australia (see The Movie Netwrok Channels Pty Ltd v Optus Vision Pty Ltd, [2010] NSWCA 111 at para 106), English law does not restrict admissible evidence about the contractual background by reference to what is known. The question is more exactly stated by reference to information which is “reasonably available” to both or all the parties. Thus, in Investors Compensation Scheme Ltd v West Bromwich Building Society,

[1998] 1 WLR 896

, Lord Hoffmann said at pp.912-913, “Subject to the requirement that it should have been reasonably available to the parties … it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man”. The commentary in Lewison (loc cit) in explanation of the statement of principle that I have set out shows that the author subscribes to this: for example, at p.150 he cites the judgment of Burton J in Durham v BAI (Run Off) Limited,

[2008] EWHC 2692

para 202, who stated what evidence is admissible by reference to “knowledge: the facts in question ‘should have been reasonably available to the parties’". Perhaps most obviously, information that is taken to be reasonably available to contracting parties, albeit not actually known to them, includes knowledge of the practices of a market in which they participated, but I do not understand it to be limited to such information. Moreover, the requirement of reasonable availability to the parties is flexible: for example, it needs to be glossed in that the information should be reasonably available to the persons to whom it was addressed rather than the immediate parties to the contract (a gloss that is particularly important in relation to negotiable contracts and public documents: see, for example, Dairy Containers Ltd v Tasman Orient Line Limited,

[2004] UKPC 22

at para 12).

[159]At the time that he entered into the Settlement Agreement, did Mr Barron have available to him information about what complaints and allegations had been made and what concerns had been expressed by Mr Norcross with regard to Mr Georgallides’ dealing with the Group generally and SHBL in particular? In my judgment, he did. It was obvious from the nature of the Settlement Agreement that there were disputes between Mr Norcross and Mr Georgallides, and the recitals referred to claims by Mr Norcross and NIL about how Mr Georgallides and QHL had conducted the affairs of the Sugar Hut Parties “whether as director or shareholder or otherwise”, and to similar claims by Mr Georgallides and QHL against Mr Norcross and NIL; and they referred to claims by the Sugar Hut Parties against Mr Georgallides for misfeasance. There is no reason to suppose that he could not have inquired what those claims were of Mr Norcross or Mr Georgallides had he been concerned to do so, and no reason to suppose that, had he done so, he would have been refused an answer or misled. Mr Barron could easily have made such inquiries. They would not have involved the sort of trawl that has apparently concerned the Australian courts: see Lewison loc cit at p.149. Nor does this view draw the court into the sort of “roving commission” about which concern has been expressed in this country: Rabin v Geron Berger Assn Ltd,

[1986] 1 WLR 526

, 533G per Fox LJ.

[160]This view does not carry an implication Mr Barron is to be criticised if he did not make such inquiries. Like the assignee considered by Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd,

[2009] UKHL 38

at para 40, he was perfectly entitled to “enquire as to the relevant background or take his chance on how that might affect the meaning a court would give to the document”. The information was still reasonably available. A person who comes to a market is taken to understand the practices and language of the market, not because a standard of reasonableness requires him to acquaint himself with them, but simply because the reasonable man would say that he shows himself willing to accept whatever the market does and however it expresses itself. So Mr Barron is taken to accept that the Settlement Agreement was intended to settle the claims made by Mr Norcross and Mr Georgallides against each other and the disputes between them, not because a standard of reasonableness dictates that he should have found out, but because a reasonable man would take him to be signing up to whatever they had in mind.

[161]Although Mr Barron’s position was not examined at the trial, I consider that I am entitled to draw these inferences. I would accept that it was strictly for the Estate to establish any matters relating to the background to the Settlement Agreement on which it relies, and Mr Lord did not put these matters to Mr Norcross (or other witnesses). But it was always clear that Mr Lord relied on the evidence of the background of Mr Norcross’s claims and allegations and his disputes with Mr Georgallides in support of the Estate’s interpretation of the Settlement Agreement, and it was never suggested by Mr Coppel that this required him to put to witnesses a case about Mr Barron’s position.

[162]However, Mr Coppel submitted that the Settlement Agreement cannot be interpreted as covering claims arising from dishonest conduct on Mr Georgallides’ part. He relied on the speech of Lord Nicholls in BCCI v Ali. Lord Nicholls said this (loc cit at para 32 and 33) “Thus far I have been considering the case where both parties were unaware of a claim which subsequently came to light. Materially different is the case where the party to whom the release was given knew that the other party had or might have a claim and knew also that the other party was ignorant of this. In some circumstances seeking and taking a general release in such a case, without disclosing the existence of the claim or possible claim, could be unacceptable sharp practice. When this is so, the law would be defective if it did not provide a remedy. “That is not the present case. … This being so, I prefer to leave discussion of the route by which the law provides a remedy where there has been sharp practice to a case where that issue arises for decision. That there is a remedy in such cases I do not for one moment doubt”.

[163]This does not assist SHBL. Lord Nicholls was not dealing with whether as a matter of interpretation a release is to be understood to cover claims for dishonesty. He was concerned with the position where there is dishonesty or sharp practice when the parties agree upon the release. This is not alleged against Mr Georgallides. Moreover, Lord Nicholls does not say that in those circumstances the court will adopt a different approach to interpreting the release: after all, Lord Bingham had made clear that the starting point when construing compromise agreements is the usual approach to contractual interpretation. Lord Nicholls, I think, was alluding to possible remedies of rescission or perhaps rectification for unilateral mistake, but it is enough to say that I cannot accept that his observation bears upon what I have to decide.

[164]In my judgment, therefore, construing the Settlement Agreement, and in particular clauses 1 and 2, the parties’ intention was to release rights of the kind that SHBL asserts in these proceedings and liabilities such as those that it alleges against the Estate. If I had otherwise upheld any of SHBL’s claims, I would have concluded that they had been settled.

[165]However, I must come back to the two other answers that Mr Coppel sought to deploy against this defence, but which I refused SHBL permission to introduce by amendment: the settlement condition argument and the constructive trust settlement argument.

[166]The settlement condition argument is that based on clause 3.1.3 of the Settlement Agreement, and it is that the condition in that clause was not fulfilled and therefore the Estate cannot rely on the Settlement Agreement. Although the condition itself is referred to in the present pleading, Mr Coppel acknowledged that SHBL cannot advance the argument unless these amendments are allowed. SHBL first sought permission to make them in mark 6.

[167]The first reason that I refused permission to amend to introduce it is that I considered it hopeless. The argument is not that, because the condition was not fulfilled, the Settlement Agreement did not come into effect at all: it is said SHBL and other parties (it is not clear to me quite which) are entitled to rely on it. The argument is that the condition obliged Mr Georgallides to bank the Sugar Hut parties’ takings since 24 September 2008 (it is not clear from the evidence why the date of 24 September 2008 was chosen: Mr Norcross did not know), and it was intended to prevent him from relying on the releases in clauses 1 and 2 if he did not do so.

[168]That is simply not what the agreement says: i) First, it does not say that Mr Georgallides was under an obligation to bank any takings. On the face of it, the responsibility for banking any takings would, I would suppose, be upon the company who had taken them, and there is no reason to suppose that the Settlement Agreement contemplated that anyone else should do so. ii) Secondly, clause 3 states conditions for “This Agreement” and not for particular rights and obligations under it.

[169]A second reason that I refused permission for these amendments is that they would introduce issues of fact that could not fairly have been determined at the trial: an issue whether the condition was fulfilled, and an issue about whether the condition had been waived. SHBL wished to rely on a bald assertion by Mr Norcross ni his witness statement that he had reviewed the bank statements of SHBL and SHFL and that “it is clear that the unaccounted for takings of 24 September 2008 to 16 October 2008 were not banked by Mr Georgallides and the pre-condition was not met”. Mr Norcross was not a reliable witness, and I would not in any case have thought it right to accept this assertion when the Estate had not had a proper opportunity to answer or refute it. However, in cross-examination Mr Norcross’s evidence became even more unsatisfactory: he said that neither he nor, as far as he knew, anyone else had checked the position after the Settlement Agreement had been made:

“At the time it would appear that was forgotten about”

. He said that he had seen bank statements before it was concluded and noticed that nothing or “very little” had been banked. He accepted that payments by card might have been banked.

[170]Mr Coppel referred to bank statements for SHBL’s account that are in evidence, and he pointed out that in the period between 24 September 2008 and 13 October 2008 the amount of cash paid into the account appears to have been less than £6,000. This does not engage with the point: the issue is whether after the Settlement Agreement sums should have been banked in order to satisfy condition 3.1.3 but were not banked. I observe also that the condition could have been satisfied by paying takings either into SHBL’s account (the “relevant company’s bank account”) or into SHGL’s account (“the Company’s account”).

[171]There is not evidence that provides a remotely credible basis for concluding that the condition was not met.

[172]As for waiver, I need only say that Mr Lord was clearly right to submit that, if I had allowed the settlement condition argument to be introduced although it had not been suggested for over six years that the Settlement Agreement is not fully operative, the Estate would have been entitled to explore whether any failure to fulfil the condition had been waived, and it would not have had a fair opportunity to do so without an adjournment of the trial.

[173]I also refused permission to amend to introduce the constructive trust argument because it too seemed to me to be hopeless. It is not an argument that the Settlement Agreement is ineffective or inoperable or not applicable to the claims brought by SHBL. It is that Mr Georgallides was, and so the Estate is, liable to account to SHBL because:

“[SHBL] made the Settlement Agreement through Mr Georgallides who, in signing the Settlement Agreement, was fraudulently in breach of his personal interest in the Settlement Agreement (namely seeking to secure for himself a release from liability to [SHBL] (cl1.3) and a release and waiver and covenant (cl2.4) conflicted with the interests of [SHBL] and/or conferred on him a benefit (namely securing the said release, waiver and covenant from [SHBL] to the disbenefit of [SHBL] (namely conferring on Mr Georgallides the said release, waiver and constent [sic”]”

. The pleading seems to me inadequate: it is not clear what account is sought. But the short answer to the complaint, in so far as I understand it, is that given by Mr Lord: the matters said to give rise to a conflict of interest were obvious to everyone when the Settlement Agreement was made. I add only that the pleading seems to me to seek to introduce into these proceedings a claim for an account that would be statute-barred if it were now brought in a new action, and it is not within CPR 17.4: that is another reason that I refused permission to amend to introduce it.

[174]The Estate therefore does not need its limitation defence. I shall consider it only briefly. The order of Eder J dated 28 November 2014 provided that SHGL and SHBL might be joined as claimants in the proceedings but that “any limitation defence that the defendants may wish to plead in respect of [SHGL’s and SHBL’s] claims may be pleaded in the Amended Defence as if the claims of [SHGL and SHBL] had been issued on 14 October 2014”. The Estate pleads that SHBL’s claims accrued more than six years before then, and so are barred by the Limitation Act, 1980.

[175]There is no dispute that the misappropriation complained of in the artefacts misappropriation claim, the payments complained of in the expenditure claims and the diversion of funds complained of in the Trigame claims are all alleged to have taken place before 14 October 2008, or that prima facie the 1980 Act precludes claims for misfeasance on the part of a director being brought after the lapse of six years from when the cause of action accrued. Section 21(3) of the 1980 Act provides that “Subject to [sections 21(1) and 21(2)], an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued. …”. Company directors are treated for the purposes of the 1980 Act as trustees of property of the company under his control: Lewin on Trusts (19th Ed, 2015) para 44-077. The Estate having pleaded that SHBL’s claims are statute barred, it is for SHBL to establish that the periods of limitation have not expired.

[176]SHBL’s first argument is that the claim is covered by section 21(1) or 21(2) of the 1980 Act. They provide as follows: “(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds of trust property in the possession of the trustee, or previously received by the trustee and converted to his use. “(2) Where a trustee who is also a beneficiary under the trust receives or retains trust property or its proceeds as his share on a distribution of trust property under the trust, his liability in any action brought by virtue of subsection (1)(b) above to recover that property or its proceeds after the expiration of the period of limitation prescribed by this Act for bringing an action to recover trust property shall be limited to the excess over his proper share. This subsection only applies if the trustee acted honestly and reasonably in making the distribution”.

[177]Mr Coppel submitted that the causes of action alleged by SHBL are within either section 21(1)(a) or 21(1)(b). I do not see how section 21(i)(b) can be engaged: it is about recovery of trust property or the proceeds thereof, and Mr Coppel confirmed that the relief sought by SHBL is by way of compensation for breach of trust. Mr Coppel cited the judgment of Lord Sumption in Williams v Central Bank of Nigeria,

[2014] UKSC 10

at para 36, but I do not understand the relevance of that authority – it was about the application of the 1980 Act to claims of dishonest assistance in breach of trust.

[178]The real question here is whether the causes of action are within section 21(1)(a), and that depends on whether they are “in respect of any fraud or fraudulent breach of trust”. These words were explained by David Richards J in Newgate Stud Company v Penfold,

[2004] EWHC 2993 (Ch)

at para 249, a case concerning the sale by a trustee of trust property without disclosing his interest in the purchaser: “… Fraud and fraudulent breach of trust for the purposes of section 21(1)(a) is limited to cases involving dishonesty, which here: ‘connotes at the minimum an intention on the part of the trustee to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or being recklessly indifferent whether it is contrary to their interests or not'. This was the test approved by the Court of Appeal in Armitage v Nurse,

[1998] Ch 241

at 251, 260 per Millett LJ and in the later case of Gwembe Valley Development Co Ltd v Koshy,

[2004] 1 BCLC 131

at 170 (para 131). It would, in my judgment, include a deliberate concealment of a material interest which he knew should be disclosed”.

[179]If I had concluded that Mr Georgallides misappropriated artefacts or other property of SHBL, that SHBL met his personal expenditure or diverted some of SHBL’s receipts, I would, nevertheless, have rejected this answer to the limitation defence. I would have concluded that it is probable that he honestly considered that he was properly reimbursing himself for monies due to him on his director’s account; and that, while he should not have done so without Mr Norcross’s assent while he was on the board, he was not dishonest.

[180]SHBL’s second argument in answer to the limitation defence relies on section 32 of the 1980 Act. Section 32 provides, so far as is material, as follows: “(1) … where in the case of any action for which a period of limitation is prescribed by this Act, either—(a) the action is based upon the fraud of the defendant; or

(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c) the action is for relief from the consequences of a mistake; the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it. … (2) For the purposes of subsection (1) above, deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty”.

[181]SHBL’s argument supposes that it has established fraudulent misfeasance against SHBL on the part of Mr Georgallides, an allegation which I have already rejected, or that Mr Georgallides deliberately suppressed some fact relevant to its cause of action, that is to say an ingredient of the cause of action: once the ingredients of a cause of action are known or could with reasonable diligence have been discovered, the limitation period is not affected by the claimant learning of further matters that strengthen his case: Halsbury, Laws of England (5th Ed, 2008) Vol 68, para 982. This, I think, is why Simon J said in Arcadia Group Brands Ltd v Vasi Inc,

[2014] EWHC 3561

at para 24 that section 32(1)(b) “is a provision whose terms are to be construed narrowly rather than broadly”. Thus, for example, what matters for the Trigame claims is not that the money went to Trigame but that it was diverted, it is said, away from SHBL and that SHBL was deprived of it. Evidentially, it might make the claim more compelling if SHBL could trace the money to Trigame, but that is not an ingredient of the cause of action.

[182]I accept Mr Coppel’s submission that a limitation period can be postponed under section 32 notwithstanding the claimant suspected that he might have a claim. However, as Simon J said in the Arcadia Group Brands case, “What a claimant has to know before time starts running against him under s32(1)(b) are those facts which, if pleaded, would be sufficient to constitute a valid claim”. This was endorsed by the Court of Appeal,

[2015] EWCA Civ 833

at para 30, where the history of and authority for the “statement of case” test is set out in detail. Here, although SHBL alleges that Mr Georgallides acted dishonesty, dishonesty is not an ingredient of any of its causes of action and it does not have to be alleged for the cause of action to be properly pleaded. If I had upheld the expenditure claims, I would have concluded that Mr Norcross knew enough about them for them to be pleaded, and I would have concluded that he could with reasonable diligence have discovered enough about the other claims.

[183]However, Mr Coppel argued that, it is not Mr Norcross’s knowledge or what Mr Norcross could have discovered that matters: he contended that, if postponed, the period of limitation would begin to run only when SHBL discovered or could with reasonable diligence have discovered the ingredients of the cause of action. Once Mr Norcross had resigned as a director of SHBL, his knowledge cannot be attributed to the company, and SHBL would not be fixed with Mr Georgallides’ knowledge if he was defrauding it. This raises a number of questions: whether SHBL is fixed with the knowledge that Mr Norcross had before he submitted his letter of resignation of 16 May 2009 when he was a director and if so what knowledge he had then; whether the letter of resignation was effective (see para 45 above), and whether, as Mr Lord submitted, SHBL is fixed with that knowledge that Mr Norcross had because his company, NIL, was a shareholder of SHGL and so Mr Norcross was indirectly a shareholder in SHBL: Mr Lord’s primary argument was that Mr Norcross’s knowledge is attributed for this purpose to SHBL because he, or more precisely his company, NIL, could as a minority shareholder have brought proceedings in respect of the diversion of funds from SHBL, improper expenditure and misappropriation.

[184]These questions were not fully argued before me, they do not all seem to me straightforward and I express no view about them. I think that there is another answer to Mr Coppel’s contention. A limitation period is not postponed under section 32(1) simply because a claimant did not know and could not with reasonable diligence have known of the ingredients of a cause of action. SHBL’s case is that it has been postponed because Mr Georgallides deliberately concealed from SHBL ingredients of the cause of action. Mr Coppel’s argument was that Mr Georgallides was the sole director from 16 May 2008 and, since SHBL was not fixed with his knowledge of his defalcations, there is no one whose knowledge is attributable to SHBL. That is not the point. I do not see how in those circumstances Mr Georgallides can be said to have “deliberately concealed” anything from SHBL. To whom could he have revealed it so as to inform SHBL, if, as Mr Coppel’s argument requires, disclosure to Mr Norcross, that is effectively to NIL, the other shareholder, would not have been effective disclosure to SHBL?

[185]SHBL’s causes of action were subject to a six-year time bar, the running of the period was not materially postponed and they are statute barred.

[186]Subject to any further submissions about the liquidators’ claims, therefore, I reject the claims because the facts on which they are based have not been proved, and because in any case the Estate has defences both under the Settlement Agreement and under the 1980 Act.

Cited in 1 later judgment

Lehman Brothers International (Europe)v Exotix Partners LLP 2019