Liquidators of English halal chicken company lose appeal against misappropriation claim against former director

About this case:

• Citation:
  [2023] EWCA Civ 269
• Judgment:
  External link
• Court:
  England and Wales Court of Appeal
• Judge:
  Lord Justice Arnold

Manolete Partners Plc, the liquidator of claims against defendant Ebrahim Dalal, argued that the High Court judge had taken an erroneous approach to calculating the company’s true sales figures. Mr Dalal, who was the sole director of the company from 2008 to 2015, maintained he had not appropriated anything and that there was insufficient evidence to support such a conclusion.

The appeal was heard by Lord Justice Moylan, Lord Justice Newey, and Lord Justice Arnold. Peter Shaw KC appeared for the appellant and Richard Leiper KC and Emma Fisher for the respondent.

True sales level

In April 2005, Bolton Poultry Ltd was incorporated to do business as a slaughterer and wholesaler of halal chicken meat in the Bolton area. Mr Dalal was a director of the company from its inception until it entered creditors voluntary liquidation in January 2015, while two other directors stepped down in 2008. It was the appellant’s position that the company’s turnover over its trading life was considerably greater than what appeared in its annual accounts, and it sought for Mr Dalal to account for the additional profits the company had made.

The genesis of the claim was an investigation by HMRC between 2011 and 2015 for the company’s corporation tax return for the year ending 30 September 2009. The investigation resulted in a Business Economics Exercise report that demonstrated that the true level of the company’s sales for that year were around £3 million higher than reported in the accounts. Mr Dalal denied that any additional sales had been made.

A Deputy High Court Judge, having heard from each of the company’s directors, noted that the evidence on a number of aspects of the calculation was extremely thin on both sides. He then carried out his own analysis to calculate the total sales of chickens for 2009, which concluded in a figure of around £2.6 million, which was actually slightly less than reported in the accounts. The judge said that he had “very little confidence” in the accuracy of the figure but that it was the best he could do based on the evidence.

It was contended by the appellant that the judge’s findings went beyond Mr Dalal’s pleaded case and that his reasoning contained identifiable flaws or gaps in logic. In particular, the judge’s finding that the appellant had not proved that it was more likely than not that there were additional sales to those declared by the company was a result of this, or of inconsistent treatment of the evidence.

Thin evidence

Lord Justice Arnold, with whom the other two judges agreed, began by noting: “The judge accepted that the Company’s record keeping had been less than perfect, and that it was therefore possible that sales had been underdeclared. He went on to make findings based on the evidence that was available. As he explained, it was not suggested to the Defendants that they had failed to disclose relevant documents. Nor did the Defendants argue that better records would have disproved Manolete’s claim.”

Assessing whether the judge had gone beyond Mr Dalal’s case, he said: “Counsel for Manolete argued that the judge had gone beyond Mr Dalal’s evidence and case as presented at trial. I do not accept this. As I have explained, Mr Dalal’s case at trial was that the evidence was not sufficiently reliable to permit the court to conclude that there had been underdeclarations of sales by the Company. The judge accepted that case.”

He continued: “Although the evidence was very thin, he considered there was just enough information for him to make a very rough estimate of the likely level of sales in that year. Having gone through each of the elements of the calculation, he arrived at an estimated figure of around £2.6 million. Thus the exercise did not show additional sales in that year. It followed that Manolete’s case as pleaded in its Particulars of Claim failed.”

Turning to the approach to the burden of proof, Arnold LJ said: “There were major gaps in the documentary evidence. The judge did the best he could with the evidence that was available, subjecting it to careful analysis. That analysis enabled him to reach the conclusion that, so far as the available evidence went, there were no additional sales in the year ending 30 September 2009. He also concluded that the evidence did not show that it was more likely than not that there were additional sales in the 10 years of the Company’s trading life.”

He concluded: “Counsel for Manolete relied upon the statement of principle of Toulson LJ in Milton Keynes Borough Council v McNulty (2013) [that] ‘the civil ‘balance of probability’ test means no less and no more than that the court must be satisfied on rational and objective grounds that the case for believing that the suggested means of causation occurred is stronger than the case for not so believing’. In my view that is precisely the test that the judge applied.”

The appeal was therefore refused.