England and Wales Court of Appeal (Civil Division) Decisions
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Cite as: [2010] EWCA Civ 159
Neutral Citation Number: [2010] EWCA Civ 159
Case No: A2/2009/1007; A2/2009/0992
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(Mr Robin Knowles CBE QC, sitting as a Deputy High Court Judge)
No 1198 of 2005
Strand, London, WC2A 2LL
05/03/2010
B e f o r e :
LORD JUSTICE DYSON
LORD JUSTICE MAURICE KAY
and
LORD JUSTICE RIMER
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Between:
KIM ZEITAL / Appellants
- and -
(1) DAVID NORMAN KAYE AND OTHERS / Respondents
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(Transcript of the Handed Down Judgment of
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Mr Michael H. Lee (appearing pro bono, through Rose Mary Kogut Memorial Free Legal Clinic) for the Appellants, Giselle and Kim Zeital
Mr Brad Pomfret (instructed by Turner Parkinson LLP) for the First Respondent (David Kaye)
Mr Nathan Banks (instructed by Azzopardi & Co) for the Second, Third and Fourth Respondent, (Kingstars Ltd, Dalmar Properties (2004) Ltd, and Stefka Appostolova)
Hearing date: 27 November 2009
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HTML VERSION OF JUDGMENT
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Crown Copyright ©
Lord Justice Rimer :
Introduction
1. The appellants are Giselle Zeital and her daughter Kim ('the Zeitals'). Mrs Zeital is the widow of Raymond Zeital ('Raymond'), who died intestate on 9 February 2004. Kim is one of their two daughters. The other is Natasha. The Zeitals are the administratrices and, together with Natasha, the sole beneficiaries of Raymond's estate. Mrs Zeital and Raymond separated some 20 years before Raymond's death. Following the separation, Raymond formed a relationship with Stefka Appostolova ('Stefka').
2. In 1988 Raymond incorporated Dalmar Properties Limited ('Dalmar'). Dalmar has had quite a history, including most importantly the acquisition by it of a flat at No 2, 30 Gruneisen Road, Barnet ('the flat'). In September 2004 Dalmar purportedly entered into members' voluntary liquidation. Its assets include the net proceeds of sale of the flat. This litigation is in substance, if not in form, about those proceeds.
3. In form the dispute is as to the beneficial ownership of Dalmar's two issued shares. The Zeitals claimed that Raymond owned them beneficially at his death and that his beneficial interest formed part of his estate. Stefka, however, claimed that Raymond gave her the shares during his lifetime so that at his death she was their beneficial owner. The ownership of the shares provides the key to the unlocking of the proceeds of sale.
4. In order to have that and other issues resolved, Dalmar's liquidator, David Kaye, sought the court's directions. The issue as to the ownership of the shares was tried over some nine days before Mr Robin Knowles CBE QC, sitting as a Deputy High Court Judge in the Chancery Division. He delivered his reserved judgment on 30 June 2008. Arguments on costs followed on 11 July 2008, when the judge made his order. A question was then promptly raised as to its proposed form, resulting in a further judgment of 4 November 2008 which was followed on the same day by the perfecting of the order of 11 July 2008 in its original proposed form.
5. The order reflected the judge's finding that both shares in Dalmar belonged beneficially to Stefka at Raymond's death; and it declared that the Zeitals had no beneficial or legal interest in Dalmar, meaning that they had no such interest in either share. By their appeal, the Zeitals challenge the judge's decision as to one of the shares: they say that the alleged gift of it to Stefka was imperfect and so failed. They do not question his decision as to the other share.
6. There was a further hearing before the judge on 3 February 2009, at which he was invited to vary his costs orders of 11 July 2008. The judge ruled on that application on 24 April 2009. As the order of 11 July 2008 had been perfected on 4 November 2008, there is a question, to which I shall return, as to whether the judge had jurisdiction to entertain that application.
7. The Zeitals' notice of appeal against the order of 11 July 2008 was filed on some uncertain date after the order of 24 April 2009. It was therefore well out of time, which was one of the reasons why on 22 July 2009, on the papers, Arden LJ refused permission to appeal. The permission application was renewed before Mummery LJ at an oral hearing on 6 August 2009. In the light of the unusual procedural history that followed the order of 11 July 2008, and recognising that the Zeitals had an arguable point, Mummery LJ gave them permission to appeal and extended their time for doing so.
8. The Zeitals appeared in person before the judge. Before us, they have had the advantage of representation by Mr Michael Lee, who has appeared pro bono and for whose efforts they will be justly grateful. I would also express the court's gratitude to Mr Lee. Mr Nathan Banks represented Stefka as well as two companies she owns and controls, as he did below. His three clients are respondents to the appeal. The companies are Kingstars Limited ('Kingstars') and Dalmar (2004) Limited ('Dalmar 2004'), which claim to be the current owners of the two shares. Mr Kaye, the liquidator of Dalmar, is also a respondent. Mr Brad Pomfret represented him, as he did below. He played a neutral role at the hearing before us.
9. Mr Banks' three clients also have a cross-appeal in respect of the judge's order of 24 April 2009, for which Arden LJ gave permission on 22 July 2009. I will deal first with the appeal and then with the cross-appeal.
The facts
10. I take these from the judge's judgment, as supplemented by the documents.
11. Raymond was an accountant in private practice. He practised under the name of Raymond Zeital & Co. He conducted his financial and business affairs in a private and secretive way. He viewed the use of limited liability companies as a means of assisting such conduct. He incorporated many companies and used them for buying properties.
12. Dalmar was one such company. It was incorporated on 25 November 1988 by formation agents acting on Raymond's instructions. Its principal object in its Memorandum of Association was property acquisition. The incorporation documents refer to its initial director as being Shahab Rafatjoo, and it was suggested at the trial that that was an alias for Raymond (Mrs Zeital had asserted this in paragraph 20 of her affidavit of 22 March 2005). The judge found that to be entirely possible, as there was evidence of instances when Raymond had used an alias. The secretary was a Mr Michael Michael. The two subscriber shares were Dalmar's only issued shares and were issued to Mr Ashok Kumar and Mrs Kamlesh Kumar, the formation agents. Each signed an undated blank stock transfer form in relation to the share he/she held, leaving blank the transferee boxes. Those forms came into Raymond's possession.
13. The purchase of the flat was in 1989 and was completed by a transfer to Dalmar on 21 August 1989, the transfer showing the price as £99,750. The purchase was financed in part by a loan of £46,500 from Northern Rock plc, secured by a registered charge. Mr Rafatjoo was therein named as a surety and its execution was witnessed by Dr Carla, an associate of Raymond. The judge found that the balance of the purchase price probably came from the proceeds of other properties held by Raymond or his companies.
14. During its early years Dalmar made annual returns to the Registrar of Companies. They recorded that Mr and Mrs Kumar remained the registered members, Mr Rafatjoo the sole director and Mr Michael the secretary. On 6 October 1998, however, the Registrar published in the London Gazette a notice of Dalmar's imminent striking off from the register and consequential dissolution, both of which happened. I presume the Registrar was exercising the jurisdiction under section 652 of the Companies Act 1985 (the Act in force at all times material to the issues in this case).
15. The flat had in the meantime been let, as it continued to be after Dalmar's dissolution. A January 2004 tenancy agreement identified the landlord as Cannon Reid & Co, which the judge found to be a name used by Raymond (he also had a company with a similar name).
16. Raymond died intestate on 9 February 2004, leaving the Zeitals and Natasha as his sole beneficiaries.
17. On 30 July 2004 Stefka purported to appoint herself as a director of Dalmar and completed a Form 288A. She was not apparently concerned that Dalmar's dissolution nearly six years earlier presented a problem in the way of such an appointment. On the same day, she issued a claim form in the Companies Court for the restoration of Dalmar to the register. I presume that her application was made under section 653 of the 1985 Act. Such an application can be made by, amongst others, 'any member' aggrieved by the striking off. Stefka's witness statement in support, made on 27 July 2004, asserted that:
'I am and was at the date when [Dalmar] was struck off by the Register [sic] of Companies as hereinafter mentioned the owner of 1 share, as is evidenced by Exhibit B, which is a copy of the Stock Transfer Form in my favour'.
I would, for my part, raise a question whether she was in fact a 'member' since the evidence suggests that she was not registered in Dalmar's share register, which appears to have been lost, whereas such registration is ordinarily a condition of 'membership' (section 22(2) of the 1985 Act). Having raised the question, I express no view as to its answer: the question is not only not before us, it remains to be tried in this litigation.
18. On 11 August 2008 Stefka signed a form 288B recording that Mr Rafatjoo had on that day ceased to be a director of the still defunct Dalmar. She presumably then regarded herself as Dalmar's sole director.
19. On 2 September 2004 Mr Registrar Jaques made an order restoring Dalmar to the register. It recited that Stefka had applied for the order as 'a member' of Dalmar and recorded her undertaking that, immediately upon restoration, she would 'take all necessary steps for procuring that [Dalmar] be placed in voluntary liquidation'.
20. On 6 September 2004 Stefka, purportedly as Dalmar's sole director, made a declaration of solvency in relation to Dalmar, a necessary preliminary to a members' voluntary liquidation. On the same day she purportedly completed, dated and signed a stock transfer form relating to the share originally issued to Mr Kumar, one of the two subscribers. The relevant security was described in it as a 'subscriber's share'. Stefka named herself as its 'registered holder' (which, for reasons given, it would appear she was not) and the transferee as Kingstars. On 7 September 2004 Stefka purportedly completed – by adding in Dalmar 2004 as the transferee – and dated the blank stock transfer form in relation to the other subscriber's share, the one originally issued to Mrs Kumar and which Mrs Kumar had signed in blank in 1988.
21. On 10 September 2004 an extraordinary general meeting of Dalmar was purportedly held, at which three resolutions were passed. First, as a special resolution, that Dalmar 'be wound up voluntarily'. Second, as an ordinary resolution, that Mr Kaye be appointed liquidator for the purpose of such winding up. Third, as an extraordinary resolution, that the liquidator be authorised to divide Dalmar's assets among the members. Special resolutions are those passed at a general meeting of which not less than 21 days' notice, specifying the intention to propose the resolution as a special resolution, has been duly given (section 378(2) of the 1985 Act). That was not done in this case, although I infer that Stefka, who signed the resolution as chairman of the meeting, may have assumed that her two companies were between them its sole shareholders and so could waive the notice requirements (section 378(3)). The resolution gives no indication of who (apart from Stefka) was present at the meeting (and the likelihood of there having in fact been a meeting is perhaps remote). The quorum for a valid general meeting of Dalmar was two persons entitled to vote, each being a member or a proxy for such or an authorised representative of a corporation (regulation 40 of Table A). Mr Kaye, the named liquidator, learnt on 13 September 2004 about the recent events affecting Dalmar, when Azzopardi & Co (solicitors for Stefka, Kingstars and Dalmar 2004) sent him the documents.
22. On 27 September 2004 Northern Rock, as chargee of the flat, appointed joint receivers under the Law of Property Act 1925.
23. At about this time, the Zeitals concluded that Stefka was, as they characterised it, 'stealing' Dalmar and they moved into the flat. Their occupation frustrated the efforts of the liquidator and the receivers to sell the flat. It was, however, sold at auction by Northern Rock, with completion on 22 June 2005. The net proceeds of £81,958.90 (after paying Northern Rock's debt and the sale costs) were remitted to Mr Kaye as liquidator. They were and remain held by him as an asset of Dalmar.