Beck v Value Capital Ltd (No. 2)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE BUCKLEY,SIR JOHN PENNYCUICK |
| Judgment Date | 16 February 1976 |
| Judgment citation (vLex) | [1976] EWCA Civ J0216-1 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 February 1976 |
[1976] EWCA Civ J0216-1
In The Supreme Court of Judicature
Court of Appeal
Civil Division
(Interlocutory List)
On appeal from Order of Goulding, J.
Lord Justice Buckley
Lord Justice Orr (not present) and
Sir John Pennycuick
Mr. JOHN WILMERS, Q. C. and Mr. T. M. STOCKDALE (instructed by Messrs Lovell, White & King) appeared on behalf of the Appellants (Plaintiffs I. P. I. Limited).
Mr. BRIAN NEILL, Q. C. and Mr. J. LECKIE (instructed by Messrs Richards, Butler & Co.) appeared on behalf of the Respondents (Defendants Value Capital Limited).
Mr. H. M. HARROD (instructed by Messrs Courts & Co.) appeared on behalf of Respondents (Defendants Property Resource Ltd).
This is an appeal from the refusal of Mr. Justice Goulding on 13th May, 1974 of leave to amend the Writ in this action. The effective parties to the action are three inter-related companies. These are (1) Investment Properties International Limited (I. P. I,) which is now the sole Plaintiff, (2) Value Capital Limited (V. C. L.) which is now the First Defendant, and (3) Property Resources Limited (P. R. L.) which is now the second Defendant. There are also four personal Defendants, Mr. Leblanc, Mr. Clay, Mr. Palmer and Mr. Morales, with whom, apart from Mr. Leblanc, I need not concern myself. They were business associates of Mr. Leblanc. The remaining three defendants, namely, David Samuel Trust Limited (D. S. T.), Society Generale pour Favorite le Development du Commerce et de 1'Industrie en France S. A. (S. G.) and National Westminster Bank Limited (N. W. B.) are three banking institutions.
By two agreements, one of which, dated as of 1st June, 1972, was between V. C. L. and P. R. L. (the V. C. L. agreement) and the other of which, dated 7th June, 1972, was between I. P. I, and P. R. L. (the I. P. I, agreement), certain assets of V. C. L. and I. P. I. were acquired by P. R. L. in consideration (inter alia) of the issue to the transferor companies of shares in P. R. L. The Plaintiff contends that these two agreements in fact constituted one comprehensive arrangement between the three companies which has been referred to in the argument as the Formation Bargain, but I propose to refer to it as "the Bargain". The proposed amendments of the Write, to the details of which I shall have to come later, seek to introduce an entirely new claim to the action for the rescission of the Bargain.
All of these three companies formed parts of a great complex of companies carried on under the control or under theauspices of a company called I. O. S. Limited, these initials standing, as I understand it, for investors Overseas Services. The activities of this commercial empire can be divided into four sections: (1) mutual funds, (2) banking, (3) dealing in and management of real estate, and (4) insurance. Its interests and activities can reasonably be described as having been world wide. It was the creation of a certain Mr. Corn field. I. P. I. and V. C. L. formed part of the third section. In the year 1970 these manifold activities were afflicted by severe economic difficulties and Mr. Corn feild's empire collapsed. The control of I. O. S. Limited then passed to a certain Mr. Vesco and the Defendant Leblanc through a company called International Controls Corporation. Mr. Vesco is a citizen of the United States of America and is thought now to be resident in Costa Rica. Mr Leblanc is a Canadian citizen and is also thought now to be resident in Costa Rica.
Immediately before the Bargain the relevant facts relating to I. P. I, V. C. L. and P. R. L. were these. I. P. I. is a company incorporated in Canada. Its capital consists of common stock and Class shares. The Class shares carry very restricted voting rights and accordingly control of I. P. I. is vested in the holders for the time being of its common stock. All the common stock was held at the time of the Bargain by a wholly owned subsidiary of V. C. L. (R. E. H.) and is still, so far as I am aware, so held. About 53% of the shares are held by members of the public, a sum exceeding $97,000,000 (U. S. A.) having been contributed by members of the public in subscription to a public issue of shares. The remainder of the issued shares of I. P. I, were held by another subsidiary of I. O. S. Limited. The management of I. P. I's business was vested under a management contract in yet another subsidiaryof I. O. S. Limited called I. P. I. Management Company Limited, All the shares in the last-mentioned company were held by V. C. L. The assets of I. P. I, consisted in the main of (a) shares in some 20 subsidiary property-owning companies worth approximately $9,000,000 (U. S. A.) and (b) cash and interest-bearing deposits amounting to approximately $50,000,000 (U. S. A.).
V. C. L. was incorporated in the Bahamas in December 1971 by Mr. Vesco and Mr. Leblanc. At the date of the Bargain they and their associates owned 38% of the issued shares of V. C. L. and so were in a position to exercise effective control of V. C. L. V. C. L. through R. E. H. owned all the common stock of I. P. I, and all the shares of I. P. I. Management Company Limited. V. C. L. consequently controlled I. P. I, and through the management company managed I. P. I's business.
P. R. L. was incorporated in the Bahamas in March 1972. It was formed for the purposes of the Bargain. Its authorized share capital consists of two classes, namely, common shares and Class shares. The common shares carry the right to appoint a majority of the Board of Directors of P. R. L. and unrestricted voting rights on other matters, and the Class shares carry the right to appoint a minority of the Board of Directors and have only limited voting rights.
Under the V. C. L. agreement, V. CL. sold to P. R. L. all the issued shares of R. E. H. and of the management company, which have both been mentioned earlier, as well as shares in two other companies in the group. The consideration for this sale consisted of 10,000 fully paid common shares and 3,14,0,000 fully paid Class shares of P. R. L. Under the I. P. I, agreement I. P. I, sold to P. R. L. all its assets as at 29th June, 1972 or such later date as the parties should agree except $500,000 (U. S. A.). The consideration for this sale was theissue to I. F. I, of 10,810,811 Class shares of P. R. L, the assumption by P. R. L. of all the liabilities of I. P. I, and the cancellation of the management contract referred to earlier in this judgment. The shares of P. R. L. which were issued under these contracts constituted the whole of the issued share capital of the company. At the time of these agreements V. C. L. was under the effective control of Mr. Vesco and Mr. Leblanc; I. P. I, was under the control of V. C. L. through R. E. H; and P. R. L. came under the control of V. C. L. as the allowed of all the common shares of P. R. L. Both agreements are expressed to be subject to Bahamian law and both were executed in England or purport to have been so executed.
The monetary assets of P. R. L. or part of them, that is, cash and equivalents to the value of approximately $50,000,000 (U. S. A.), were at the date of the writ located in London and employed in operations on the London Stock and Money Markets. I shall refer to these as the London funds. They were held by or to the order of D. S. T, S. G. and N. W. B. on behalf of P. R. L. For reasons which it is fortunately unnecessary for me to discuss in this judgment, the independent shareholders of I. P. I, or some of them conceived that Mr. Leblanc and his associates were attempting to extract the London funds or some of them from P. R. L. and to apply them improperly for their own benefit or the benefit of other companies which they controlled or were otherwise interested in. On 6th April, 1973 two such shareholders, Mr. Beck and Dr. Fet scher, issued the writ in this action, suing on behalf of themselves and of the holders of all the shares of I. P. I, other than shares held by V. C. L. The relief claimed, stated shortly, consisted of (a) declarations that to procure or concur in the transfer of any of the London funds to any member of the Leblanc group (meaning Mr. Leblancand a number of individual associates of his and any company controlled by one or more of them) would constitute a breach of duty on the part of the directors of P. R. L, (b) injunctions restraining P. R. L, its directors and each of them from procuring or concurring in any such transfer, and (c) injunctions restraining the three bank defendants from concurring or assisting in any such transactions.
The action so constituted was unusual in that it was a minority shareholders' representative action at one remove. The assets sought to be protected were P. R. L's assets and P. R. L. would have been the proper Plaintiff but for the fact that the directors of P. R. L. were amongst those whose conduct was impugned, so that it would have been unrealistic to suppose it to be possible to secure a resolution of P. R. L's board of directors authorizing the issue of the writ. In these circumstances, the normal course would have been for a shareholder of P. R. L, suing in a representative capacity, to have been the plaintiff in accordance with the practice inaugurated in At wool v. Merry weather (Law Reports 5 Equity, 464, note) and recently discussed in this court in Waller Steiner v. Meir (No.2) (1975 Queen's Bench, 373, at 390 and 399); but V. C. L. and I. P. I. together held or controlled all the issued shares of P. R. L. Although a substantial part of the shares of I. P. I, are held by members of the public, that company is controlled by V. C. L. through P. R. L. and R. E. H. as holder of all its common stock, and its board of directors are appointees of V. C. L. through P. R. L. and R. E. H. by virtue of R. E. H's controlling votes. Accordingly, it would have been...
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