Auden McKenzie (Pharma Division) Ltd v Amit Patel
| Jurisdiction | England & Wales |
| Judge | Mr Justice Robin Knowles CBE,Robin Knowles J |
| Judgment Date | 17 May 2019 |
| Neutral Citation | [2019] EWHC 1257 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Claim No: CL-2017-000697 |
| Date | 17 May 2019 |
[2019] EWHC 1257 (Comm)
IN THE HIGH COURT OF JUSTICE
THE BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Robin Knowles CBE
Claim No: CL-2017-000697
Andrew George QC and Victoria Windle (instructed by Byrne and Partners LLP) for the Claimants
Paul McGrath QC and Ciaran Keller (instructed by Bryan Cave Leighton Paisner) for the Defendants
Edmund King QC (instructed by Latham & Watkins) for the Third Party
Hearing dates: 20–22 November 2018
I direct that pursuant to CPR PD39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version may be treated as authentic
Introduction
This litigation is due to be tried in two stages, the first of which will be in early 2020.
This judgment deals with matters that various of the parties contend may be dealt with now by way of summary judgment or strike out. There is a related question of interim payment and a question of amendment.
The case has its complexities and many points are interconnected. Some of the matters raised in practice involve an invitation to the court to decide preliminary issues, although no application has been made for there to be a trial of preliminary issues.
As a result, and as will be clear from the course I take below, there are a number of related decisions to be made which are effectively case management decisions about whether in the particular case points are best addressed now or at trial.
The parties are agreed that the court has power to grant summary judgment in respect of all or part of a claim or defence where a defendant or claimant has no real prospect of success and there is no other reason why the claim or issue should be left to be disposed of at trial.
The parties are also agreed that all or part of a claim or defence may be struck out where a statement of case discloses no reasonable ground for bringing or defending the claim. The parties cited well known authority illuminating aspects of the approach to be taken, and there was no real issue between them over these.
On questions on contract interpretation the parties again cited well known authority illuminating aspects of the principles applicable, and there was again no real issue between them over these.
Context
On 23 January 2015 the Second Claimant (Actavis Holdings UK Limited) entered into a Share Purchase Agreement (SPA) to purchase the holding company (Auden McKenzie Holdings Limited) of the First Claimant (Auden McKenzie (Pharma Division) Limited) from the Defendants for an initial consideration of £323.5 million.
The Third Claimant (Chilcott UK Limited) is the assignee of the rights and interests of the Second Claimant in the SPA, and in the event it was the Third Claimant not the Second Claimant that became the ultimate owner of the First Claimant. The SPA also provided for additional consideration under earn-out arrangements and the Third Party (Allergan plc) is a guarantor of the Second Claimant's obligations under those earn-out arrangements.
The litigation includes claims in deceit by the Second and Third Claimants against the Defendants. It is alleged the Defendants misrepresented the financial circumstances of the First Claimant. The alleged loss and damage is said to be affected by activity that in due course led to an investigation by the Competition and Markets Authority over an alleged abuse of a dominant position by the First Claimant in charging excessive and/or unfair prices in relation to the sale of hydrocortisone tablets. The activity may have consequences for the First Claimant and its economic successors, both in the form of of fines imposed and also damages claims from purchasers where products were sold at excessive prices.
Payments against false invoices
Between 2009 and 2014 the First Defendant, or both Defendants, procured the First Claimant to make payments in the total sum of £13,763,452 ultimately to offshore accounts legally or beneficially owned by the Defendants, or otherwise to the order of the Defendants. The payments were made against invoices which falsely described them as in respect of research and development. The purpose was to extract the money for the Defendants themselves and avoid the payment of tax on the payments.
There is no material issue on these facts. The First Claimant applies for summary judgment against the First Defendant for that sum of £13,763,452 on the basis that the First Defendant acted in breach of his (agreed) fiduciary duties as a director of the First Claimant. Other claims also arise out of the same facts but are not the object of the application. The First Defendant says there is inconsistency between some of the claims. That should not prevent my considering the claim the subject of this application on its own merits.
Taking just one of the fiduciary duties relied on by the First Claimant and admitted by the First Defendant, the First Defendant owed to the First Claimant a duty “to act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole”. The First Defendant could not conceivably have considered “in good faith” the payments would “promote the success of the company”.
The First Defendant relies on the principle in Re Duomatic, allowing the approval of all members of a company to ratify a breach of fiduciary duty. The First Defendant argues that it is plainly more than merely fanciful in the circumstances of this case that the consent of the Defendants, as the only shareholders in Auden McKenzie Holdings Limited, itself the only shareholder in the First Claimant, and who were entitled to and took all decisions on its behalf, would be sufficient for the purposes of the principle in Re Duomatic.
The First Defendant offers suggested examples where Re Duomatic would save actions in other circumstances and, by suggested parallel, should (it is argued) do so here. Mr Paul McGrath QC and Mr Ciaran Keller for the First Defendant add the submission that this is “… a classic example of the sort of undecided point in a difficult and developing area of the law, on which differing reasons have been expressed in this jurisdiction and across the Commonwealth, that is inappropriate for summary determination …”.
In the present case payments were procured dishonestly; they were said to be for research and development when they were not; they were for the Defendants to have for themselves and to have in a way that dishonestly evaded the tax consequences. Whatever else may be the precise compass of the Re Duomatic principle, as a principle developed to save conduct it has not been developed to save conduct of this nature. The company, the First Claimant, could not do lawfully what was done and the assent of all its members could not alter that. The principle is for transactions that are “honest”: Parker and Cooper Ltd v Reading [1926] Ch 975 at 984 (per Astbury J) cited with approval in Randhawa and Another v Turpin and Another (as former Joint Administrators of BW Estates Limited) [2017] EWCA Civ 1021; [2018] Ch 511 at [56]–[57] (Court of Appeal; Sir Geoffrey Vos CHC).
But the First Defendant then approaches the matter in a second way. He argues that the payments would have been made lawfully if they had not been made unlawfully, and as result there is no loss. Referring to Target Holdings Ltd v Redferns (a firm) [1996] AC 421, the First Defendant says of the claim for equitable compensation in particular that the court is not required to shut its eyes to subsequent events or ignore the reality of what would actually have happened.
Lord Browne-Wilkinson's words (at 436D-E) in Target Holdings are emphasised:
“… the fact that there is an accrued cause of action as soon as the breach is committed does not in my judgment mean that the quantum of the compensation payable is ultimately fixed as at the date when the breach occurred. The quantum is fixed at the date of judgment at which date, according to the circumstances then pertaining, the compensation is assessed at the figure then necessary to put the trust estate or the beneficiary back into the position it would have been had there been no breach.”
So too, the First Defendant emphasises the words of Lord Reed JSC in AIB Group (UK) plc v Mark Redler & Co Solicitors [2014] UKSC 58; [2015] AC 1503 at [107]:
“… to impose an obligation to reconstitute the trust fund, in order to enable the client to recover more than he has in fact lost, ‘flies in the face and is in direct conflict with the basic principles of equitable compensation’. That is clearly correct. As Lord Browne-Wilkinson went on to explain, an obligation to reconstitute the trust fund does not inexorably require a payment into the fund of the value of the misapplied property, for example where the consequences of the breach of trust have been mitigated by subsequent events.”
And Lord Neuberger MR in Sinclair Investments (UK) Limited v Versailles Trade Finance Ltd [2011] EWCA Civ 347; [2012] Ch 453 at [47] invoking the words of Kirby J in the High Court of Australia in Maguire v Makaronis (1977) 188 CLR 449, 496:
“[The remedy] will be fashioned according to the exigencies of the particular case so as to do what is ‘practically just’ as between the parties … The fiduciary must not be ‘robbed’; nor must the beneficiary be unjustly enriched.”
The First Defendant gives evidence that had the payments not been made he would have consulted with his advisers as to the most appropriate and...
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Tonstate Group Ltd v Edward Wojakovski
...not lawfully carry out itself. That was the conclusion reached by Robin Knowles J in Auden McKenzie (Pharma Division) Ltd v Patel [2019] EWHC 1257 (Comm). In that case the defendants procured that the first claimant make payments to accounts owned by the defendants against invoices falsely......