Bayley and Others v SG Associates and Others
| Jurisdiction | England & Wales |
| Judge | Mr David Railton QC |
| Judgment Date | 22 January 2014 |
| Neutral Citation | [2014] EWHC 782 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC11C03843 |
| Date | 22 January 2014 |
[2014] EWHC 782 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Rolls Building
Fetter Lane
London EC4A 1NL
Mr David Railton QC
(SITTING AS A JUDGE OF THE HIGH COURT)
Case No: HC11C03843
Mr Gabriel Buttimore appeared on behalf of the Claimant
No representation appeared on behalf of the Defendants
Introduction
In this matter the Claimants are the beneficiaries, and all the beneficiaries, of the AF Phillips Trust ("the Trust"). The Trust was established under the laws of the British Virgin Islands by deed dated 17 November 1983. Its current trustee, and its trustee at all times material to these proceedings, is the Third Defendant, SGA Advisors Ltd ("the Trustee"). The Trustee is a corporate trustee established under the laws of the British Virgin Islands, which acts for other trusts as well as the Trust. At all material times the Second Defendant, Mr Derek Gray ("Mr Gray") has been a director of the Trustee.
The Trust was established by Mr John Bayley (who died in 1987), for the benefit of his family. It was established with the assistance of Mr Gray, who was a longstanding friend and business associate of Mr Bayley. Mr Gray provided various services to the Trust through the First Defendant, SG Associates Ltd ("SGA"), of which he was also a director.
The present proceedings concern loss allegedly suffered by the Trust in and after 2007 as a result of the Trust being invested in a US company known as Clean Diesel Technologies, Inc ("CDT"). CDT was a technology company which developed, designed, marketed and licensed technologies and solutions which were intended to reduce emissions from combustion engines, while improving fuel economy and engine power. Mr Gray was from 1998 a director of CDT. From about 2001 he was Chairman of CDT's Audit Committee, and between 2003 and 2009 he was also Chairman of its Board.
Between 1996 and 2006 the Trust built up a very substantial holding in CDT shares, representing by value over 50% of the Trust's assets. For reasons I set out in more detail below, the Claimants allege that the Trust should have sold the totality of its shareholding in CDT in 2007, and had it done so, it would have been (by June 2010, when the bulk of the Trust's assets were distributed) over £900,000 better off.
The three Defendants to the present proceedings are SGA, Mr Gray, and the Trustee. I need say no more about the claims against Mr Gray, as at the start of this trial I was informed that the Claimants and Mr Gray had settled those claims on a confidential basis. Mr Gray, who was acting in person, accordingly withdrew, and has taken no part in the proceedings since then.
The Trustee is joined to these proceedings not for the purpose of pursuing causes of action directly against it, but because the Claimants seek to make derivative claims, in other words claims (originally against both Mr Gray, and SGA) in which they as beneficiaries rely on the causes of action which the Trustee allegedly has against those defendants. In the circumstances in which I refer to further below, the Trustee has taken no active role in these proceedings, and has not participated in this trial.
The other defendant, SGA, is in liquidation. Before going into liquidation it served a Defence, jointly with Mr Gray, denying liability. Its liquidators are aware of these proceedings, and have not sought to have them stayed. They are also aware of this trial, and have written to the court explaining that, in the interests of saving legal costs, they do not intend to attend. The only parties who have been represented before me have as a result been the Claimants.
Having settled with Mr Gray, this trial has accordingly taken the shape of the Claimants proving their case against SGA. Their case is in essence put in two ways. First, relying on the derivative claims by the Trustee, they allege that SGA was in breach of its contract with the Trustee, and/or of the duty it owed to the Trustee, in (amongst other things) failing to sell the CDT shares when it should have done in 2007. Secondly, and alternatively, the Claimants allege that SGA owed them each a direct duty of care in tort, which they also contend was broken by SGA (amongst other things) failing to sell the CDT shares when it should have done in 2007.
For the purposes of proving their case the Claimants, who have been represented by Mr Gabriel Buttimore, have taken me through a number of documents in the trial bundles relating to the role of SGA, its relationship with the Trustee and the Claimants, and in particular its role in managing, and advising in relation to, the Trust's investments. They have also called as factual witnesses Sarah Bayley (the First Claimant), Richard Gillingham (Sarah Bayley's partner), and David Brown (who had been an employee and director of SGA between April 2006 and April 2010). In addition they have relied by way of hearsay statements on the evidence of Susan Fairhurst, Joanna Eskdale, Ann Bayley and Julia Coggins. They have also relied on the written report of an expert, Dr Thomas Walford, which I refer to further below.
SGA's duties to the Trustee
It is convenient to start by considering what duties were owed by SGA to the Trustee at any material time. It has been admitted in the Defence served on behalf of SGA (supported by a statement of truth signed by Mr Gray) that it provided international fiscal, trust and corporate advisory and administrative services to the Trustee, but it is denied that such services extended to advice on investments.
There is no formal or written retainer between SGA and the Trustee, but the documents which I have been shown indicate that SGA's mandate extended to advising the Trustee in relation to investment strategy, and particular investments, as well as making and managing the investments on behalf of the Trustee. There are accordingly minutes of meetings in which SGA discussed and advised the beneficiaries in relation to investments, in particular in 1999 and 2007. The meetings relating to this usually took place at SGA's offices; such minutes as were produced by Mr Gray or his assistant after the meetings were on SGA paper; and Mr Gray communicated in respect of such matters by an SGA email account.
It also appears that SGA charged the Trustee for the time spent by Mr Gray and others in relation to discussing and advising on investment matters, and effecting and managing the investments made. The periodic invoices it sent to the Trustee included work in respect of meetings attended by Mr Gray in which he discussed investment strategy with the beneficiaries, and also for administering the investments made. It is apparent from the documents which I have been shown that Mr Gray's involvement in these respects was not as a director of the Trustee, but as a director or employee acting on behalf of SGA.
I am accordingly satisfied (as the Claimants allege) that SGA's retainer with the Trustee included advising in relation to the investment strategy of the Trust, advising generally in relation to appropriate investments, managing the Trust's investments, and acting generally as the Trustee's agent in all matters pertaining to the Trust's investments and its administration. It was an implied term of SGA's retainer that it would act with reasonable care and skill. I am also satisfied that SGA owed the Trustee a parallel duty of care in tort.
There is little, if any, evidence that SGA ever formally sought the approval of the Trustee to any particular investment, or change in investment policy. While there are documents showing the Trustee giving formal approval to disbursements by way of loan from time to time to various of the beneficiaries, there are no similar documents in relation to the investments entered into by the Trust.
The lack of formality may be explained in part (albeit not excused) by the role which Mr Gray had, as both a director of SGA, and a director of the Trustee. It seems, from the material I have seen, that he did not consider it necessary to consult with his co-directors of the Trustee in relation to investment matters, or at least no written record of him doing so has survived in the files of SGA, or has been produced by the Trustee. Indeed, it appears from Ms Fairhurst's statement that while she was a director of the Trustee (between 2004 and 2009) she, and it is to be inferred other directors of the Trustee, were largely kept in the dark in relation to the affairs of the Trust. Mr Brown's evidence, in relation to Mr Gray's dealings with him as a co-director at SGA, is to similar effect.
In practice Mr Gray appears to have regarded SGA (through him) as being able to act without prior reference to the Trustee. It does not appear that he had the approval of the other directors of the Trustee to act in this way, but whether he did or not is not a matter to be determined in this trial. As a matter of fact, SGA's services in relation to the Trust extended to investments, and it accordingly owed duties to the Trustee in respect of the performance of those services.
Performance of its duties by SGA
The particular complaints made by the Claimants in respect of SGA relate to the period in and after 2007. It is however necessary to set out some of the background to give the complaints their proper context. As mentioned above, Mr Gray had been involved with the Trust from the outset in 1984, and following Mr Bayley's death in 1987 he (through SGA) took the...
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