Forensic & Expert Witness-Chris Makin

FORENSIC & EXPERT WITNESS

Chris Makin

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Chris Makin

Gerroff moy land!

Land in the UK is a finite commodity – except on the East Coast for example, where either through natural erosion or a policy of abandoning land to the sea, our small island is growing even smaller – so it is little wonder that arguments over who owns which part of our precious Albion are emotive.

Some land of course is well worth fighting over: the narrow strip which would allow access to a huge building site worth millions, for example. But what can cause just as much concern is the dispute between neighbours over where exactly a border runs between their properties. Such disputes can last for years at huge expense, and emotionally they can be a nightmare.

Take the case of neighbours in rural Lancashire, reported in the Daily Telegraph a little time ago. A dispute over the exact placing of a fence had gone to the High Court, which ruled in favour of Mr Jeffrey Grundy, a businessman. His neighbour Miss June Iddon, a 72-year old spinster, didn’t accept the court’s decision. When Mr Grundy and his contractor began moving the fence, Miss Iddon, in a rage, seized a spade and swung it at Mr Grundy, breaking his arm. She was sent to prison for 12 weeks, and was dragged down to the cells, protesting her innocence.

So not only would it have cost her a fortune in legal fees when she lost at the High Court, not only does she now have a criminal record, but when she is released (for good behaviour?!) she will have to go on living next door to the person she hates.

There has to be a better way of solving such cases, and indeed there is.

District Judge Stephen Oliver-Jones QC, designated DJ for the West Midlands, is so aware of such problems that he insists, on first learning of a boundary dispute in his area, that all parties and their lawyers attend his chambers, where he warns them of the expense, delay and emotion of continuing with the litigation, and forcefully urges them have a skilled mediator help them to settle the matter.

Of course mediation is not the answer to every situation – Halsey –v- Milton Keynes General NHS Trust [2004] EWCA Civ 576 gives a checklist – but it is remarkably effective in many cases, and the going rate for reaching a settlement is reckoned to be over 70%, even including those parties who agreed to mediate only after judicial “encouragement”.

As Lord Justice May said in Egan –v- Motor Services (Bath) Ltd [2007] EWCA Civ 1002:

“Try it more often.”

Chris Makin Forensic Accountant & Mediator

Chris Makin Forensic Accountant & Mediator Please allow me to describe a couple of mediations I have done on this topic, all identifying features changed to preserve confidentiality.

B

usiness neighbours had not spoken for ten years when I was asked to mediate their dispute.

At the start they even refused to sit in the same room.

The dispute was over a yard between two Victorian warehouses. On the low side was a motor panel beater who had traded there for many years; on the other a new architects’ practice. The latter had constructed a mezzanine floor and modern staircases inside, and completed the facelift by laying tarmac in the yard.

Trouble was, the yard had been muddy with natural drainage. Now every time it rained the water ran down the slope into the panel beater’s workshop. He couldn’t spray cars over a wet floor, and had to waste time mopping out.

Worse, the architects had marked out the yard with parking spaces, blocking a public right of way, a fire escape, and access to the workshop.

The panel beater had produced an expert accountant’s report on loss of profit of £100,000. It was grossly inflated, and was really just a cry for help.

I took the parties out to the yard on a damp November afternoon, got them to measure up the access points and blocked markings, and eventually the architect agreed to repaint the parking spaces freeing up the right of way and access, and agreed to have a new drain constructed to take the water away. With a modest payment to the panel beater for his inconvenience, the dispute of ten years was settled in a day.

Chris Makin Forensic Accountant & Mediator

T

he other example concerned a row of detached houses, “little boxes on the hillside made of ticky tacky”. Looking from left to right there was Mr Left’s house and a drive, then Mr Right’s service strip and house with a drive to its right, and so on up the hill.

Mr Left wanted to construct a garage at the side of his house with a bedroom above, and there was doubt about where exactly the border lay between his drive and the service strip. Mr Left asked Mr Right for the benefit of the doubt, to construct his extension up to the edge of the service strip rather than taking the mid-point of the low dividing wall. Mr Right adamantly refused; but when he was on holiday, Mr Left had the extension built nevertheless.

During the mediation, I knew we were in trouble when Mr Right produce a photograph of his house, showing where he believed the boundary lay. Interestingly, there was a bedsheet draped out of the bedroom window, painted with a Union Jack and “Welcome Home, Gary”.

To be friendly, I asked “Who’s Gary?” to be told that he was his now dead, a soldier killed in the first Gulf War, and Mr Left had encroached on the “sacred” land where he had played with Gary as a child.

After fierce negotiations, Mr Left agreed to pull down the extension – it was only a brickwork shell – and rebuild it two inches narrower. That would have been a good result, except that Mr Right said that he must have been Right (!) all along, so he wanted his costs. Mr Left had no money. The mediation failed, and no doubt the dispute rumbled on, with huge legal costs and destroyed relationships; but we got so close.

Litigation destroys relationships; mediation can rebuild them. Litigation is hugely expensive; the cost of mediation can be modest. Litigation can last for many years; mediation is usually over in a day. And mediation is such a powerful process that even a mediator such as myself, a mere chartered accountant, can bring warring parties together.

chris@chrismakin.co.uk www.chrismakin.co.uk

Does the Premier League have a future?

was e l c 0. r ti s A in 201 anged i (Th itten ve ch wr ay ha n, ) e uch m h t m s ng since ot by Thi n bly a b pro but

I know nothing about football.

Exceptions: my Dad took me to see Huddersfield Town twice – the pork pies were interesting, but the match wasn’t.

And I’ve played at Leeds Road and Elland Road, but only in a brass band for Royal visits.

And I was expert for the defence, South Yorkshire Police, when the officers who were traumatised at the Leppings Lane end at Hillsborough claimed loss of earnings and pension; but the trial settled on the first day, so I didn’t learn much about football even then.

All of which made me the obvious choice, when the BBC wanted an accountant who knows nothing about football, to review the accounts of the 20 Premier League clubs, and give an interview for “The Report” on BBC Radio 4, on whether these clubs have a viable business model.

So if what follows contains any bloomers, I apologise in advance; I repeat, I know nothing about football.

I reviewed the latest filed accounts at the time of the interview in April, when most of the accounts on file were for years ending in May to July 2009. All were filed on time, except for Liverpool, who had only just filed their July 2008 accounts, for obvious reasons: their banking facility of £350m was due to expire on 26 July 2009, and when the accounts were signed on 26 February 2009 that problem had not been resolved.

KPMG qualified the audit report for “a material uncertainty which may cast significant doubt on the Group’s and the Parent’s ability to continue as a going concern.”

www.chrismakin.co.uk chris@chrismakin.co.uk

Although there were exceptions, most of the accounts showed a worrying position.

Directors’ reports included such phrases as: •“The acquisition of players and their related payroll costs are deemed the core activity risk…the directors are mindful of the pitfalls that are inherent in this area of the business.”

•“The debt level is manageable but cannot continue to increase further.”

•“The Directors are currently in discussions with lenders regarding the potential securitisation of future guaranteed broadcast revenues…” Selling one’s birthright for a mess of pottage springs to mind.

•“These losses are being funded in a number of ways.

Once again we are indebted to certain directors…”

•“The loss for the year amounted to £6.9m wich has been transferred to reserves…” – but this club didn’t have any reserves!

•“The company has received assurances from the directors of the parent company that no repayment demand will be made which would…cause the company to be technically insolvent.”

The accumulated accounts for the Premier League (excluding Portsmouth, which is in administration)

show turnover of £1,869.64million; net losses (net of net profits) of £269.115m; fixed assets £3,045.384m; net current liabilities £1,061.278m, and total liabilities (current, long term, provisions, deferred income etc) of £4,418.233m. Four and a half billion pounds! The total balance sheet worth of these clubs is £(484,275,000) – that’s half a billion negative!

These are frightening figures.

So what is going on? These features emerge: •Only 5 clubs made a trading profit last year, and most were modest, ranging from £½m for Stoke to £9.35m for Manchester United, and then £35m for the star, Arsenal.

•About a third of most clubs’ income is from broadcasting, but to stay in the game, clubs must win matches.

•They try to do that by spending more and more on players: buying at high prices, and paying high salaries. But profit from such a plan is not guaranteed.

•Stoke City is a case in point. Promoted to the Premier League during the year, its turnover went from £11m to £54m, yet its net loss of £4.3m increased to a net profit of only £0.5m. Other clubs suffered huge losses despite paying millions for players.

Chris Makin Forensic Accountant & Mediator

The most prominent feature of these accounts is the support given by directors.

Most clubs have high current liabilities, which include large sums injected by directors. Manchester City shows £194.4m owed to Sheikh Mansour’s parent company; At Stoke the Coates family are converting £24m of debt into equity; at Sunderland, E Short gave £67m to the club during the year; at Wigan Athletic, the chairman David Whelan’s holding company is owed £39m, and has provided security for the club’s bank borrowings of £11m.

The most extreme case of a director supporting the club is Chelsea, which Roman Abramovich has supported to the extent of over half a billion pounds.

One must ask what chance such benefactors have of ever seeing their money again.

So the Premier League does have a future, but only if there is a steady supply of rich benefactors, willing to loan large amounts with little prospect of repayment.

And such benefactors cannot be guaranteed to renew their support; see for example Burnley, where one director’s company has loaned £3.246m. The trouble is that this company is now in administration, and of course the administrator’s duty is to the creditors, not to the football club. Burnley’s accounts do not give news of any successor to this failed benefactor.

The clearest example of a club losing its benefactors is Portsmouth. The administrator’s report tells a sad tale of a benefactor withdrawing, of lengthy talks with two possible successors, and of neither of them coming up with the goods. Result: arguably no future.

So, whilst football does give pleasure to millions of fans, and whilst some enthusiasts are willing to spend millions on their clubs, the financial model is dependent on this small group of benefactors, and in the real world that isn’t really a sustainable model.

I know nothing about football; my passion is classical music, but for my friends’ sake I do worry that Premier League football may not last as long as Bach, Mozart, and Beethoven.