Abby Elizabeth Swain and Others v Swains Plc and Others
| Jurisdiction | England & Wales |
| Judge | HH Judge Pelling |
| Judgment Date | 20 March 2015 |
| Neutral Citation | [2015] EWHC 660 (Ch) |
| Docket Number | Case No: HC13B00603 |
| Court | Chancery Division |
| Date | 20 March 2015 |
[2015] EWHC 660 (Ch)
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Royal Courts of Justice, Rolls
Building
Fetter Lane, London, EC4A 1NL
His Honour Judge Pelling QC
SITTING AS A JUDGE OF THE HIGH COURT
Case No: HC13B00603
Mr Paul Marshall (instructed by W Legal, Solicitors) for the Claimants
The First Defendant did not appear and was not represented
Mr Nigel Burroughs (instructed by Beale & Co) for the Second Defendant
Mr Paul Mitchell (instructed by Clyde & Co) for the Third Defendant
Hearing dates: 24–25 and 27 February, 2–6 and 13 March and 20 April 2015
HH Judge Pelling QC:
Introduction
The Dispute in Summary
In these proceedings the claimants (who are sisters) claim against the second defendant and the third defendant (in his capacity as personal representative of Mr David Jonathan Berry Deceased ["DB"]) either damages for breach of contract by reference to an alleged failure on the part of the second defendant and DB, in their capacity as Trustees of the Swain Employees' Trust ("SET"), to pay the true " fair value" for the claimants' shares in the first defendant ("SPLC") under the terms of an option or options in their favour granted by the claimants or an Order setting aside an auditor's certificate as to the fair value of their shares and a declaration as to the true fair value of those shares.
In the alternative the claimants claim damages for loss alleged to have been caused by an unlawful means conspiracy by which it is alleged that the second defendant and DB conspired with the claimants' sister Ms Claire Swain-Mason ["CSM"] (who is not and never has been a party to these proceedings) and Mr Charles Wilson ["CW"] (who also is not and never has been a party to these proceedings) to procure the sale of the shares to the SET at an undervalue for the ultimate benefit of CW and CSM. At all material times. CSM was a director of, and shareholder in, SPLC, and CW was the managing director of and a shareholder in SPLC.
The Trial
The trial took place between 24–25 and 27 February and 2–6 March 2015. I heard evidence from the following witnesses of fact namely each of the Claimants and the second defendant and from three chartered accountants who were called by the parties to give expert valuation evidence. Neither CSM nor CW was called to give evidence. I acceded to an application by the second and third defendants (which was opposed by the claimants) that the expert evidence be taken concurrently in accordance with the procedure set out in CPR Part 35 and CPR Part 35 Practice Direction. Having decided to adopt that course I directed that the experts were to meet throughout the trial as often as was necessary in order to see whether any further narrowing of issues or agreement could be reached. In the event no further narrowing of issues occurred prior to the experts giving evidence.
In the course of the trial the claimants made various applications to amend their Particulars of Claim. Where these were consented to, or not opposed, I permitted those amendments to be made. On the one occasion when amendment was opposed, the application was withdrawn. The only amendment of substance was to Paragraph (3) of the Prayer to the Particulars of Claim. This was consented to by Mr Mitchell, counsel for the third defendant, and was not opposed by Mr Burroughs, counsel for the second defendant. As amended this paragraph now reads:
"And the Claimants claim:
…
(3) A declaration that the valuation and purchase of the claimants' shares pursuant to the exercise of the options by the Trustees was at an undervalue and should be set aside and the court should value the claimants' shares"
I acceded to this application even though made by Mr Marshall in the course of his reply submissions because the issues that arise had been fully argued and Mr Burroughs did not suggest that his clients would be in any way prejudiced by the proposed amendment. It is difficult to see how he could be prejudiced since the validity of the valuation had been fully canvassed in the evidence and submissions and the issue concerning true value fully explored in the course of the trial with the assistance of the expert witnesses.
Evidential Burden and Standard
The claimants' conspiracy case is one that is founded on inferences that it is said I should draw either from the primary facts or from the timing and sequence of events. Since the second defendant is, and DB was, a respected professional, and since the allegations made against them are ones that impact on their honesty and integrity, it is right that I should remind myself that (a) the legal burden of proof rests throughout on the claimants, who must prove their case on the balance of probabilities, but (b) whilst the standard of proof in a civil case such as this is always the balance of probabilities, the more serious the allegation or the more serious the consequences of such an allegation being true the more cogent must be the evidence if the civil standard of proof is to be discharged – see Re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563 per Lord Nicholls at 586, where he said:
"The balance of probabilities standard means that a court is satisfied that an event occurred if a court considers that on the evidence the occurrence of the event was more likely than not. In assessing the probabilities, the court will have in mind as a factor to whatever extent it is appropriate in the particular case that the more serious the allegation the less likely it is that the event occurred and hence the stronger should be the evidence before court concludes that the allegation is established on the balance of probabilities. Fraud is usually less likely than negligence…Built into the preponderance of probabilities standard is a generous degree of flexibility in respect of the seriousness of the allegation."
Finally, I remind myself that if and to the extent that the Defendants advance a positive case, the evidential burden of proving that positive case on the balance of probabilities rests on them.
Background and Factual Findings
Background Down to 17 February 2007
Mr Swain inherited from his father a company that subsequently became known as Swains International Plc. The business of that company was the wholesale supply of photography equipment. Swains International Plc prospered under Mr Swain's stewardship.
At all material times, Mr Swain was supported and advised by DB and the second defendant, respectively as his solicitor and accountant. DB was at all material times one of two directors in a solicitors' practice called Berry & Walton Limited that operated principally from an office at 8 King Street, Kings Lynn, Norfolk. The second defendant was one of two directors of Kirby and Haslam Limited, a company that carried on business as chartered accountants, tax consultants and auditors from premises at 11 King Street, Kings Lynn, Norfolk.
It is common ground that both DB and the second defendant were long standing advisors and confidantes of Mr Swain. The roles that each came to play over the years reflected that level of trust. Both were Trustees of the SET; both (together with CSM) were Mr Swain's executors; both were personal advisors to Mr Swain; and Kirby and Haslam Limited was accountant to and auditor of Mr Swain's companies, while Berry & Walton Limited acted as their legal advisor. The second defendant says in paragraph 17 of his statement that Mr Swain always used a small circle of advisors who he trusted. This is not disputed and I accept it as correct. The second defendant says in the same paragraph that the SET was set up with him and DB as Trustees precisely because he was Mr Swain's trusted accountant and DB was his trusted legal advisor. This is consistent with how Mr Swain operated and I accept it as correct.
By 2001, Mr Swain wanted to diversify the busin ess of Swains International Plc into telecommunications and SPLC was formed as the vehicle to carry on that business. Initially all the shares in SPLC were held by Swains International Plc. Mr Swain did not have the knowledge and experience to operate in the telecommunications industry and so he recruited CW. CW was and is very experienced in that industry. SPLC was a successful venture. It was not disputed by the claimants that much of the success that followed was the result of CW's knowledge, experience and activity. Mr Swain's contribution to the success of SPLC was as its funder.
In 2003, the SPLC shares were transferred by Swains International Plc as follows:
| Shareholder | Number | Holding | ||
| Mr Swain CW | 27,136 | 54.27% | 12,500 | 25.00% |
| CSM | 2,420 | 4.84% | ||
| 1 st Claimant | 2,420 | 4.84% | ||
| 2 nd Claimant | 2,420 | 4.84% | ||
| 3 rd Claimant | 2,420 | 4.84% | ||
| Employees | 684 | 1.37% |
Transferring shares to each of his daughters was the means by which Mr Swain could provide them with an income in the form of dividends in a tax efficient manner. However, Mr Swain was anxious to maintain control of the shares that he transferred to his daughters for two reasons. First, it is common ground that Mr Swain considered that non-executive shareholders in companies controlled by him should not interfere in the operation of the business of the company concerned. Secondly he was concerned that the shares should not fall into the hands of non – family members whether as the result of matrimonial breakdown or...
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