Burmah Oil Company Ltd v Governor and Company of the Bank of England
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS |
| Judgment Date | 19 January 1979 |
| Judgment citation (vLex) | [1979] EWCA Civ J0119-3 |
| Court | Court of Appeal (Civil Division) |
[1979] EWCA Civ J0119-3
In The Supreme Court of Judicature
Court of Appeal
On Appeal from The High Court of Justice
Chancery Division
GROUP B
The Master of The Rolls
(Lord Denning)
Lord Justice Bridge and
Lord Justice Templeman
MR. D. K. RATTEE, Q. C. (instructed by Messrs. Freshfields, Solicitors, London) appeared on behalf of the Defendants (Respondents).
MR. P. GIBSON and MR. H. WOOLF (instructed by the Treasury Solicitor) appeared on behalf of H.M. Attorney-General as Intervener.
This case is concerned with discovery of documents. This in turn depends on the issues in the pleadings. I will tell the story as it is alleged hut would ask you not to accept it as true: because it has not yet been proved.
The Burmah Oil Co. Ltd. had one great asset. It owned nearly 80,000,000 stock units in the British Petroleum Co, Ltd. (That was about 21 per cent of the total shareholding in B. P. The U. K. Government held 51 per cent). Those 80, 000, 000 stock units were worth in the middle of 1974 about £6 a share. That is £480,000,000. They were not encumbered by any mortgage or other security. They were a great source of strength to Burmah Oil. The directors had assured the stockholders that they would not be disposed of without the prior approval of those stockholders.
Yet in the story which I have to tell they were disposed of by a sale to the Bank of England on the 23rd January, 1975 for £2.30 a share, that is £180, 000, 000: That disposal was made without the knowledge or approval of the stockholders. Six months later, by July 1975, the price had recovered to about £6 a share. So that the Bank of England made a profit of £300, 000, 000 on the deal. Now it is £9 a share - giving a profit of £540,000,000, The Burmah Oil Co. now say that the Bank of England took unfair advantage of them and their stockholders: and the Bank did it, not of their own free will, but under pressure from the Government. Burmah seek to have the deal re-opened so as to claim back, for their stockholders, some at least of this profit made by the Bank of England.
The transaction was precipitated by a crisis, in December 1974 in the affairs of Burmah. It had previously borrowed largesums for various enterprises, £54,000,000 on a Loan Stock in England and $650,000,000 on dollar loans in the U.S.A. It had committed itself to the financing of oil tanker vessels on a large scale. I will not go into the details but, under the terms of those loans, when the value of the B.P. stock units fell dramatically in 1974 from £6 to £2.30, the lenders became entitled to require immediate repayment. It looked as if by the 31st December, 1974 the lenders would be entitled to appoint a receiver and force the Burmah Oil Co. into liquidation. All their assets would be in jeopardy, including not only the B.P. shares, but also important interests which Burmah had in oil fields in the North Sea.
On the 23rd December, 1974, just before Christmas, news of this crisis reached the Bank of England and they told the Government. It was obviously in the national interest that the Burmah Oil Co, should be kept alive. If it defaulted on its dollar borrowings, it would have a serious effect on the pound sterling. If it suffered a financial collapse, it would seriously affect the Governments North Sea Oil policy.
Now it is important to observe that, according to Burmah, it would have been possible for Burmah to obtain financial support from other sources. In particular there were sources of wealth in the United States and the Middle East which might come to the rescue - for a consideration, of course, which might include the B.P. stock units and North Sea Oil. This would be much against the national interest. So the Bank of England asked the Burmah Oil Co. not to approach other possible sources until it was seen what the Bank of England could do.
There was, I expect, a lull on Christmas Day in the negotiations: but otherwise there was intense activity fromthe 23rd to the 31st December, 1974. There were discussions between the Burmah Oil Co. on the one hands and the Treasury, the Department of Energy and the Bank of England on the other hand. They resulted in "outline proposals" of the 31st December, 1974. Under these proposals the Bank of England launched a rescue operation. It provided cash and gave guarantees. By so doing, it secured that there should be no default on the borrowings made by -the Burmah Oil Co. In return, the Burmah Oil Co. mortgaged to the Bank of England its 80,000,000 stock units in B.P. The mortgage was on the terms that, after the debts had been cleared off, "any balance remaining shall be placed at the free disposal of the Company". In addition, the Burmah Oil Co. agreed to transfer to the Government 51 per cent of its interest in the North Sea oil fields. So at that stage the Burmah Oil Co. were simply mortgagors of the B.P. stock units. If they rose in value, the proceeds could be used to pay off the debts of Burmah: and any balance would be available for the stockholders.
In the first ten days of January 1975, however, the position of Burmah was discovered to be more precarious than had been realised. There were unsecured lenders who were becoming restless. There was also a breach by Burmah of their obligations in a Trust Deed: with the result that a large sum might become immediately payable. The financial advisers of Burmah (Barings) felt that to overcome these new difficulties there was a need for further massive financial assistance. They put it at £225,000,000.
On the 10th January, 1975 the Bank of England made an alternative suggestion. It was to the effect that, instead of mortgaging the B.P. stock units to the Bank, Burmah shouldsell them to the Bank at the current market quoted price with a provision that any subsequent profit on re-sale should he split between the Bank and Burmah. By this time the price of the B.P. stock units had begun to rise, so there was a possibility of a profit on re-sale.
Over the next 11 days there were again intensive negotiations. They were between Burmah on the one hand, and H. M. Treasury, the Department of Energy and the Bank on the other hand. It was always assumed both by the Bank and Burmah that the sale would be at the current quoted price and that Burmah would share in any profit made by the Bank on the re-sale. The Bank thought that would be only fair, especially as the stockholders of Burmah had not been asked for their approval. But on the 22nd January, 1975 the Bank told Burmah that the Government were not prepared to accept any profit-sharing formulas that the price to be paid by the Bank should be £2.30 per share. This was, say Burmah, most unfair. By this time, the shares were quoted at £2,68. Yet the Government would not allow the Bank to pay that price, nor to allow any profit-sharing.
The Burmah Oil Co. had no chance now of going elsewhere for help. They were in such a desperate position that they had no choice but to accept the terms dictated to them.
On the 23rd January, 1975 a memorandum of agreement was made by which:
(1) The Bank agreed to purchase from Burmah the 80,000,000 stock units of B.P. at a price of £2.30 per share for a total cash sum of nearly £180,000,000.
(2) The Bank agreed to provide a stand-by facility of £75,000,000.
(3) Burmah to transfer to H.M. Government 51 per cent of their interest in the North Sea oil fields.
The Bank thus acquired all the B.P. shares at the very low price of £2,30 a share: when the market price was £2. 68. In July 1975 it reached £5.48 and had since then risen to £6.85. That is three times what they paid for it. The Bank had assets worth in July 1975 £480,000,000 which they acquired for £180,000,000: and they are worth much more now.
On the 6th October, 1976 Burmah issued a writ against the Bank of England asking for an order that the 80,000,000 B. P. stock units be transferred back to them against payment back by Burmah of the £180,000,000: and for other accounts and inquiries.
The pleadings are long and detailed but as I read them Burmah base their claim on these grounds:
First: At the time when Burmah was in a position to seek support from other sources, the Bank of England, at the instance of the Government, told Burmah not to go elsewhere for help: because the Bank itself would come to the rescue. Burmah acceded to that request and thus lost other opportunities then open to them. This was accentuated by the Bank of England obtaining a charge on the B.P. stock units on the 31st December, 1974s and thus disabling Burmah from using those stock units in negotiating with third parties.
Secondly: Having thus obtained a commanding position over Burmah, the Government and the Bank ought not to have taken an unfair advantage of it. No doubt Burmah required further assistance but the Bank and the Government ought to have given it on fair terms. The Bank of England itself thought that fairness required that Burmah should have some part of anybenefit accruing from an increase in value of the B. P. shares, but the Government unfairly insisted that Burmah should have no benefit. The price, too, should have been the market price at the date of acquisition, £2.68, but the Government insisted that it should be only £2. 30.
According to Burmah, those elements together raise a case of inequality of bargaining power as set out in Lloyd's Bank v. Bundy (1975) Queen's Bench 326. Burmah disposed of their shares in B. P. on terms which were very unfair, when their bargaining power was grievously impaired by reason of their own needs, and when undue pressure was brought to bear by the Government - who was the ultimate beneficiary of the B.P. shares and of the North Sea oil fields.
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