Bryanston Finance Ltd v de Vries (No. 2)

LORD JUSTICE BUCKIEY: There are two appeals before this court. The first is from an order of Mr. Justice Oliver dated the 30th April, 1975, in an action of Bryanston Finance Limited -v- de Vries (1975 B. 1758) (which I will call "the first action). The other is from an order of the same learned judge dated the 15th May, 1975, in an action between the same parties the reference number of which Is 1975 B. 4491 (which I shall call "the second action").

The defendant, Mr. de Vries, is a small shareholder in the plaintiff company. He is indeed a small shareholder, for he holds 62 shares only of 25p each In a total issued capital of the plaintiff company amounting to 7,414,938 shares. He is, and has for some time been, engaged in a war with the chairman and managing director of the plaintiff company, one Alfred Teddy Smith (who I will call "Mr. Smith), who holds about 57 per cent, of the issued share capital of the company.

The plaintiff company is a holding company whose assets consist mainly of shares in a number of subsidiary companies, which are shown in the plaintiff's company's accounts as divided into three divisions, namely, a finance division consisting of five subsidiaries, including a banking company called National Union Bank Limited, incorporated in the Bahamas, of which Mr. Smith is the principal executive, a property dealing division consisting of a company called Bryston Property Group (London) Limited, and an industrial division consisting of 11 subsidiary companies, including a company called Amalgamated Industrials Limited. A company called English Precision Machines and Tools Limited, of which Mr. de Vries was a director and shareholder, was formerly acustomer of National Union Bank Limited (which I will call "the bank"). In about 1969 a receiver of this company was appointed by the bank. It would seem that the feud between Mr. de Vries and Mr. Smith dates from this time.

In January, 1969, Mr. de Vries and others commenced an action against the bank and Mr. Smith claiming damages for an alleged conspiracy by the defendants to injure the plaintiffs in their business. The plaintiffs in this action other than Mr. de Vries came to terms with the defendants, but Mr. de Vries fought the action and lost it. In February, 1971, the plaintiff company, the bank and Mr. Smith brought an action against Mr. de Vries and another claiming remedies for defamation. The other defendant came to terms with the plaintiffs, but again Mr. de Vries fought the action and lost it. However, on appeal Mr. de Vries was successful in getting the decision reversed ( 1975 2 W.L.R. p. 718).

The consolidated accounts of the plaintiff company and its subsidiaries for the year ended 31st December, 1972, contained a note in the following terms: "11. Principal shareholder. The balances with the principal shareholder are made up as follows -

Interest Charges in 1972 in respect of advances to Mr. A.T. Smith and companies under his control totalled £48,000 (1971 – nil) Including £32,000 relating to prior years."

In the consolidated accounts for the following year the following note appeared:

"12. Principal shareholder. The balances with the principal shareholder which arise from the Group's banking business are made up as follows:

Since 31st December 1973 arrangements have been made under which all transactions between Bryanston Finance Limited and its subsidiaries and Mr. A.T. Smith's companies under his control will be conducted through the account of one of Mr. Smith's companies with the banking subsidiary and all balances have accordingly been transferred to this account. The net amount of Interest receivable in 1973 in respect of balances with the principal shareholder amounted to £37,000 (1972 £48,000) of which £17,000 (1972 £32,000) related to prior years. Also included in the consolidated profit and loss account are charges made to companies under the control of the principal shareholder in respect of administration services provided by the group."

It will be observed that the item which in the 1972 accounts is described as "advances to Mr. A.T. Smith and companies under his control" appears in the 1973 accounts as "advances to companies under Mr. Smith's control". The note in 1972, however, still purports to deal with "balances with theprincipal shareholder", which presumably means Mr. Smith. In 1972 the net balance was adverse to the company, but in 1973 was in its favour, the difference amounting to £334,000.

At the Annual General Meeting in 1974 Mr. de Vries asked a number of questions relating to this entry in the 1973 accounts. He obtained very little information by way of reply, and was thoroughly dissatisfied with the answers. By a letter dated the 14th August, 1974, Mr. de Vries repeated these questions and asked a number of other questions, demanding a reply not later than the 20th August, 1974. Having received no reply, on the 16th February, 1975, Mr. de Vries again wrote to Mr. Smith referring to his earlier letter of the 14th August, 1974, raising the same questions again and other questions, and stating that if no reasonable reply or explanation was received not later than the 20th February, 1975, he, Mr. de Vries, would without further notice proceed to petition the court to wind up the company under Section 222 (f) of the Companies Act 1948.

On the 19th February, 1975, the company Issued a writ against Mr. de Vries claiming an injunction restraining him from presenting a petition for winding up the company on the ground of failure to answer any or all of the questions set out in or incorporated in Mr. de Vries' letter of the 18th February, 1975, or on any ground connected therewith. On the same day the company obtained an ex parte injunction in the terms of the indorsement on the writ. The motion came before Mr. Justice Megarry on the 25th February, 1975, when he adjourned it to the 17th March, 1975. In an affidavit sworn on the 20th February, 1975, Mr. Fltzhugt, the secretary of the company, stated that the company was willing to answer suchquestions as after proper consultation with its professional advisers it was advised that it might and should lawfully answer. However, none of these questions has been answered. On the 18th March, 1975, Mr. Justice Megarry continued the injunction until trial or further order. No appeal has been made against that order, which was perfected and entered on the 28th April, 1975.

On the 20th March, 1975, a shareholder named Marcus Brown wrote to Mr. de Vries offering to buy his shares at the original cost price, which was, I think, about 48p a share. Mr. de Vries did not accept that offer.

On the 27th March, 1975, it was announced in the press that a company called A.T. Smith Organisation Limited (which I will call "A.T.S.O.") was to make an offer for the minority shares In the plaintiff company at the price of 7p per share. This offer was made to the minority shareholders through a company called Seton Trust Limited by a circular dated the 21st April, 1975. The chairman of Seton Trust Limited was Mr. Hegard, who is, or is alleged to be, an associate of long standing of Mr. Smith and was also a director of the plaintiff company. It appears from the circular sent out by Seton Trust Limited that A.T.S.O. was a private company wholly owned by Mr. Smith, and that its only directors were Mr. Smith and a Mr. Morris. Mr. Morris was not a shareholder in the plaintiff company, but was a director of certain subsidiary companies in the group.

The directors of the plaintiff company at this time were Mr. Smith (chairman and managing director), Mr. Green, Mr. Hegard and Mr. Joseph. The circular sent out by Seton TrustLimited containing the A.T.S.O. offer was accompanied by a circular letter to the minority shareholders signed by Mr. Green on behalf of himself, Mr. Hegard and Mr. Joseph, who were therein described as "the independent directors". The letter stated that the Independent directors had appointed Rowe, Rudd & Co. Ltd. to advise them In compliance with the provisions of the City Code on Takeovers and Mergers, who had been assisted by a firm of accountants, Goodman Jones & Partners. Mr. Hegard was a member of Row, Rudd & Co. Ltd. The offer was not supported by any independent valuation of the assets of the company, nor was it based upon any recently audited accounts. The letter signed by Mr. Green describes the business of the group in very gloomy terms. It concludes by saying that the independent directors were convinced that, should the offer not be accepted by shareholders, it would probably not be possible for the plaintiff company to meet Its working capital commitments in the prevailing circumstances, that it might become necessary to request the suspension of the company's quotation on the Stock Exchange, and that some form of reconstruction of the company might have to be effected. The independent directors unanimously recommended shareholders to accept the offer.

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