Buckingham Homes Ltd v Peter Malcolm Rutter
| Jurisdiction | England & Wales |
| Judge | Richard Spearman |
| Judgment Date | 12 July 2019 |
| Neutral Citation | [2019] EWHC 1760 (Ch) |
| Date | 12 July 2019 |
| Court | Chancery Division |
| Docket Number | Claim No: HC-2017-001400 |
[2019] EWHC 1760 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (CHANCERY DIVISION)
Royal Courts of Justice
Strand, London, WC2A 2LL
Richard Spearman Q.C. (sitting as a Deputy Judge of the Chancery Division)
Claim No: HC-2017-001400
Jeremy Cousins QC and Peter Dodge for the Claimants (instructed by David Woolfe Limited)
Mark Harper QC and Nigel Hood (instructed by Weightmans LLP) for the Defendants
Hearing dates: 15–18, 21–22 January 2019 and 14–15 February 2019
Richard Spearman Q.C.:
Table of Contents
| INTRODUCTION | 1 |
| THE DISPUTE IN OUTLINE | 3 |
| AMENDMENT OF THE PARTICULARS OF CLAIM | 11 |
| THE EVIDENCE OF THE WITNESSES | 15 |
| EVENTS IN LATE 2009 | 55 |
| THE MEETING ON 16 DECEMBER 2009 | 70 |
| THE CLAIM INVOLVING £150,000 | 107 |
| THE CLAIM INVOLVING THE SALE OF PART OF THE PROPERTY | 131 |
| THE CLAIM INVOLVING £343,23197 | 173 |
| THE DEFENDANTS' CLAIMS FOR RELIEF | 189 |
| CONCLUSION | 205 |
INTRODUCTION
This is a claim for breach of duty against the former directors of the First Claimant (“PADS”). It is brought at the instigation of the Second Claimant (“Mr Ross”), who became the ultimate beneficial owner of all the shares in PADS in consequence of a Share Purchase Agreement dated 8 March 2016. Schedule 1 to that Agreement identifies the sellers as Mr Ross and the Defendants. The buyer was Artaro Limited, a company which is owned and controlled by Mr Ross. Further claims brought by Mr Ross personally were abandoned by the start of the trial, and nothing more need be said about those claims, although they may give rise to costs arguments in due course.
PADS and Mr Ross were represented by Jeremy Cousins QC and Peter Dodge, and the Defendants were represented by Mark Harper QC and Nigel Hood. I am grateful to all of them for their extensive and helpful written and oral submissions.
THE DISPUTE IN OUTLINE
PADS was incorporated on 20 October 1995 and has had various names. It was named PRC Professional Services Limited between 15 November 1995 and 20 July 2009, Professional and Development Services Limited between 20 July 2009 and 5 April 2016, and Artaro Development Services Limited between 5 April 2016 and 16 February 2017, before changing its name to Buckingham Homes Limited on 16 February 2017. It was named Professional and Development Services Limited throughout the time that is material to the present claim, and is referred to as PADS in contemporary documents. It is therefore convenient to refer to it as PADS for the purposes of these proceedings.
PADS was one of a number of associated companies (“the PRC Group”). PADS was a wholly owned subsidiary of PRC Holdings Limited (“PRCH”), which was dissolved on 8 November 2012. Another company in the PRC Group was PRC Architects Limited (“PRCA”), which provided architectural services, was at one time called PRC Fewster Architects Limited, and was dissolved on 13 January 2017. A further company in the PRC Group is PRC Architecture and Planning Limited (“PRCA&P”), which is a provider of engineering services, and which has previously been called PRC Engineering Limited and (for an intervening period) PRC Fewster Engineering Limited.
PADS owned a freehold property at 34, Victoria Road, Surbiton (“the Property”) as a result of a purchase which completed on 8 October 1999. On or about that date a Restructuring Note (“the Note”) was agreed between (so far as relevant to the present claim) the First Defendant (“Mr Rutter”), Mr Ross, the Second Defendant (“Mr Gilmore”), the Third Defendant (“Mr Crawford”), and the Fourth Defendant (“Mr Symes”). The Note provided for both a new board of directors of PADS (comprising Messrs Rutter, Crawford, Gilmore and Symes), and a new share structure pursuant to which PRCH continued to hold the 2 ordinary issued shares in PADS and Messrs Ross, Rutter, Crawford, Gilmore and Symes would hold differing numbers of Redeemable Preference (“RP”) Shares. The principal relevant provisions of the Note are as follows:
(1) Clause 1 of the Note recorded that the general purpose of the RP Shares “is to protect and preserve for the RP Shareholders … the equity in [the Property] which [PADS] is purchasing (completion date 8 October 1999)”.
(2) Among other things, Clause 2 defined:
“Equity Value” to mean “the Value [as defined] of the Property at the relevant time” less certain specified expenses including selling costs, amounts required to redeem loans for the purchase of the Property and financing costs of approved capital costs authorised by a Special Majority.
“Minor Shareholder” to mean any of Messrs, Crawford, Gilmore, Symes (as well as a Mr Douglas) “who at the relevant time holds RP Shares”.
“Special Majority” to mean:
“a majority of votes of RP Shareholders in favour of a resolution where (a) at least one of the Minor RP Shareholders votes in favour of the resolution and (b) votes representing in excess of 50% of the then issued RP Shares are cast in favour of the resolution”.
(3) Clause 3 provided that:
“Dividends
(a) Dividends shall only be paid to the RP Shareholders in respect of net income arising from the Property or in respect of realised Equity Value from time to time and shall be for such amount as a Special Majority shall decide.
(b) No dividend shall be payable to ordinary shareholders in respect of net income arising from the Property or in respect of realised Equity Value from time to time.”
(4) Clause 4 provided that:
“Voting
Only a Special Majority shall determine any matter concerning the purchase ownership management or sale of the Property or the financing or re-financing of it. Ordinary shareholders shall not be entitled to vote in respect of these matters. Subject thereto each RP Shareholder shall have one vote for each RP Share held by him.”
(4) Clause 5 provided that:
“Winding up
On a winding up of the Company the Property shall be sold or distributed in specie in such manner as the RP Shareholders shall unanimously decide. The ordinary shareholders shall not participate in the assets of the Company in so far as they relate to realised Equity Value or net income.”
The RP Shares were created pursuant to an ordinary resolution passed on 26 June 2000 and were allotted from that date. On the same day, by a special resolution, the memorandum and articles of association of PADS (“the Memorandum and Articles”) were amended. Among other things:
(1) In accordance with Article 6(b), every RP Shareholder was entitled to vote upon any matter “relating to the purchase ownership management development alteration letting sale or other disposal of the Property”.
(2) In accordance with Article 7, notice had to be given of meetings, and in the case of special business the general nature of that business had to be specified.
(3) Pursuant to Article 1, the formalities in relation to notice prescribed by paragraph 38 of Table A were incorporated into the Articles.
On 16 December 2009, a meeting or purported meeting of the board of directors and shareholders of PADS took place. In accordance with the minutes of that meeting (“the Minutes”) a number of resolutions were passed, the validity of which is at the heart of the present proceedings. It is Mr Ross' case that, although the Minutes list him as being in attendance: (a) he was given no notice of that meeting; (b) he did not attend it; (c) he first learned of the Minutes when the Defendants provided disclosure of the same in these proceedings and “was astonished”; and (d) had he been aware of the meeting and what was going to be discussed, he would have objected to a number of those resolutions. For their part, although none of the Defendants claimed to have any positive recollection that Mr Ross was notified of, or was present at, the meeting, they nevertheless contend that Mr Ross is bound by those resolutions (a) because he was indeed present, alternatively (b) in accordance with the principle in Re Duomatic Limited [1969] 2 Ch 365. The following matters recorded in the Minutes are in issue:
(1) Paragraph 1(f) recorded that PADS had previously resolved to market the Property and that following the sale “the net proceeds after discharging all borrowing and costs would be distributed (subject to tax) to shareholders and that each shareholder would at that time reconcile his respective financial position with:
(i) The other shareholders; and
(ii) [PRCA&P]; and
(iii) In relation to any calls made upon Peter Rutter and Michael Ross in respect of the joint and several guarantee for £250,000 given by the two of them to Barclays Bank plc in respect of [PRCA] or upon Peter Rutter in respect of the £150,000 additional guarantee given by Peter Rutter to the said bank and in respect of the realisation of any security given by either of them in support of either guarantee”.
(2) Paragraphs 1(g)-1(i) recorded that PRCA&P required an injection of £150,000 which would be provided by Barclays Bank plc (“Barclays”); that Barclays had indicated that it would lend £150,000 to PADS in return for a second charge on the Property, which PADS had agreed to provide; and that PADS had agreed to advance the sum of £150,000 to PRCA&P on terms to be agreed.
(3) Paragraph 2 recorded that:
“Detailed discussion of the above background took place during which each director and shareholder disclosed his personal interest in the subject matter discussed. It was decided that the various proposals were (in so far as they concerned [PADS]) in [PADS'] best commercial interests as well as that of its shareholders.”
At the start of the trial, I granted permission for PADS to amend its pleaded case. In light of that amendment,...
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