Travelnet And Tours Ltd v Patel & Ors

A claimant alleging misappropriation must establish each item on the balance of probabilities. A jointly appointed accountant’s categorisation of items by accounting confidence does not determine legal liability. Where a defendant has removed or destroyed relevant documents, the court may place an evidential burden on that defendant to explain disputed transactions and may weigh the absence of an explanation against him. Equitable interest may be awarded on misappropriated funds where the defendant acted as trustee or director in breach of fiduciary duty. The appropriate award remains fact-sensitive; compound interest is not automatic.

Travelnet and Tours Limited brought claims against its former director, Ismail Patel, and companies associated with him. It alleged that Patel had diverted clients, receipts and payments to himself and to Travelnet and Tours (UK) Limited, and had concealed the transactions by altering or removing business records.

The claims included alleged misuse of cheques, diversion of client receipts, appropriation of company money and interest. A jointly appointed forensic accountant reported on loss and damage. The court determined liability and quantum after considering that evidence together with the wider factual evidence, including Patel’s failure to explain disputed transactions and shortcomings in disclosure.

1. Approach to evidence. The court had to determine each claimed item on the balance of probabilities. The jointly appointed accountant’s categories identified the degree of accounting support for an item, but did not replace the court’s legal task of assessing the whole of the evidence.
2. Patel had removed or destroyed a significant but unknown quantity of documents and failed to provide full disclosure or detailed explanations. In those circumstances, an evidential burden rested on him to explain disputed items. His failure to do so could be weighed against him, particularly where an explanation was reasonably called for.
3. The court found that Patel had misappropriated specified payments and receipts, including disguised cheque payments and sums diverted through the associated company. The claims succeeded to the extent identified in the formal summary of findings. The separate claim for loss of profit on wholly redirected business failed because it depended on too many assumptions and might duplicate the successful appropriation claim.
4. The alleged partnership and profit-sharing agreement was not established. Patel’s grievances about his remuneration and treatment did not provide a defence to the misappropriation claims.
5. Because the sums awarded represented loss caused by Patel acting as trustee and director in breach of fiduciary duty, equitable interest was available. Compound interest was inappropriate. Simple interest at 6 per cent was awarded from 21 January 2009, the date of service of the first freezing injunction, until judgment.
6. Judgment was entered against Patel and Travelnet and Tours (UK) Limited for the sums found due and interest. The claim against Travelish and Tours Limited was dismissed.