Cadbury Schweppes Plc and another v Halifax Share Dealing Ltd and another
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE LINDSAY,Mr Justice Lindsay |
| Judgment Date | 23 May 2006 |
| Neutral Citation | [2006] EWHC 1184 (Ch) |
| Docket Number | Case No: HC05C01596 |
| Court | Chancery Division |
| Date | 23 May 2006 |
[2006] EWHC 1184 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Lindsay
Case No: HC05C01596
Miss Rosalind Nicholson (instructed By Leboeuf Lamb Greene & Macrae) For The Claimants And Part 20 Defendant
Mr Alain Choo Choy (instructed By Dla Piper Rudnick Gray Cary Uk Llp) For The Defendant And Part 20 Claimant
Hearing dates: 26 th and 27 th April 2006
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
As one of the two proceedings now before me here has been a trial on written agreed facts. It is concerned, in the context of dealings with shares in the two Claimant companies ("the Companies") listed at the London Stock Exchange, with the question of which one or more of the three innocent parties to the action – the Companies, their Registrars and the Stockbrokers used in the share dealings – are to bear the cost of making good to yet further innocent persons – shareholders in the Companies—the losses caused to those shareholders by the action of fraudsters. The fraudsters had successfully contrived to sell shares in the Companies which truly belonged throughout to the shareholders. The shareholders thus found themselves no longer recognised as such. When the frauds were detected the Companies procured the purchase in the market of shares in themselves in order to distribute them to the defrauded shareholders. Dividends that had been lost to the shareholders by way of the fraud were also made good to them. So the shareholders have lost nothing but the exercise of recoupment has been expensive. Who is to bear its cost?
The Claimants are, respectively, Cadbury Schweppes plc and Unilever plc. They appear by Miss Nicholson. The only Defendant, Halifax Share Dealing Ltd., ("the Stockbrokers") appears by Mr Choo Choy and is also a Part 20 Claimant against a single Part 20 Defendant, —"the Registrars" —Lloyds TSB Bank plc, which at all material times was contractually engaged by each of the Companies to provide share registration services. The Registrars, at any rate for the main parts of the argument, make common cause with the Companies and also appear by Miss Nicholson.
The trial has been unusual in that there has been no attempt amongst the Companies, the Registrars and the Stockbrokers to assess relative blameworthiness for the frauds. No questions, for example, of negligence or of comparative rôles in causation have been raised. The frauds are simply accepted as facts as, equally, is the innocence and honesty of each of the parties before me. As the facts, as I have mentioned, have been agreed, the issues before me are exclusively of law but fall for decision in a somewhat artificial context (in litigation at least) in which matters such as ability or failure to inquire and relative culpability have played no part.
The other of the two proceedings before me, directed to come on at the same time as the Claimants' action, is an application by the Registrars to strike-out the Stockbroker's Part 20 claim against them as disclosing no reasonable cause of action, alternatively asking for summary judgment against the Stockbroker. Again, the issues are exclusively of law.
Had I been given an assurance that adequate steps had already been taken such as would invariably thwart any repetition of similar frauds in these or in other companies I would have set out the steps taken by the fraudsters in some detail but that assurance is not given to me. As I have no wish to publish a blueprint for further frauds I shall therefore mention the facts only to such extent as is necessary to make the judgment intelligible.
The facts
Whilst the facts that have been agreed relate to several shareholders I was only taken in any detail to those relating to one of them, on the footing that those facts could be taken as typical. The story that emerges is this. A number of shareholders (whom I shall call "the Original Shareholders") in one or other of the Companies became the objects of attention by fraudsters who, by communication with the Registrars, procured first that there should be a false change of address on the members' register of the Company in respect of the holdings of the Original Shareholders concerned. The new addresses were chosen by the fraudsters and it will be convenient to call them "the fraudsters' addresses". Next the fraudsters, in further communication with Registrars and as if they were and in the respective names of the Original Shareholders, falsely (and unknown to the Original Shareholders) claimed that the Original Shareholders' certificates had been lost and asked for duplicate certificates (still in the names of the Original Shareholders) to be issued and to be sent, as they then were, to the fraudsters' addresses.
At the next stage there were forged transfers of shares purporting to be by the Original Shareholders respectively by way of gift to new names (the fraudsters' names or names used by the fraudsters and which I will call "the fraudsters' names"). The forged transfers were sent with the duplicate certificates to the Registrars together with express or implied requests for the transfer of the holdings into the fraudsters' names and the issue of fresh share certificates in the names of the fraudsters. Fresh certificates under the common or securities seals of the Company concerned and in the fraudsters' names (which I shall call "the false certificates") were thus procured from the Registrars and were sent to the fraudsters' addresses. The false certificates were false in the sense that they misrepresented who at the time should truly have been in the register of members as holders of those particular shares and where the legal title in the shares they described should then truly have lain.
Finally (although the mechanisms used varied a little from one case to another and in some cases involved the Crest system and a move to a certificate-less holding and in other cases did not) a sale would be procured by the fraudsters by way of their lodging the false certificate and a transfer executed in the fraudster's name with the Stockbrokers. The transfer so lodged with the Stockbrokers was, of course, fraudulent as devised as part of a fraud but was regular on its face in that the identity of the transferor and of the registered holder of the shares as indicated on the share certificate accorded with each other. The shares in question were then sold in the market and the Stockbrokers lodged the fraudulent transfers and the false certificates with the Registrars for the transfers to be registered and (generally) for fresh certificates to be issued to those who had purchased the shares in the market.
The Original Shareholders' shares thus came to be held by innocent incoming shareholders and the fraudsters, where undetected, were paid as upon any ordinary sale of listed shares through brokers. After varying intervals the Original Shareholders then learned of the frauds and of their not being and having not for some time been on the register and they thus requested that the Companies should re-instate them. As I have mentioned, that was done, without need for proceedings, by way of the Companies procuring purchases in the market of appropriate numbers of shares and their registration in the names of the Original Shareholders. The Original Shareholders also were paid such dividends as the frauds had denied them. It is for the costs of so re-instating the Original Shareholders, both as to their shareholdings and as to dividends, that the Companies now claim against the stockbrokers.
Throughout the main part of the argument there is, it is agreed, no need to distinguish between the position of the Companies and that of the Registrars, who may be regarded as no more or less than an identified agent of each Company, employed by the Company to discharge on its behalf the duties associated with share registration and held out to the public as such.
At one point Miss Nicholson asserted that the Stockbrokers had been in a better position than the Companies to enquire into the propriety of the share transfer forms. That, although perhaps obvious enough, is not something I feel entitled to rely upon. The Agreed Facts, as I have mentioned, are at pains to avoid such assertions and in any event the assertion could be met with an equally obvious comment that the Companies and the Registrars were better placed than the Stockbrokers to enquire into the propriety of the changes of address and of the issue of duplicate certificates.
The issues; a Summary
The issues, as I have said, are exclusively of law and chief amongst them, in summary, is this: what is the proper outcome when this head-on conflict occurs. On the one hand, in the agreed circumstances there is admitted to be an implied indemnity in favour of a company when someone (here the Stockbrokers) lodges with the registrar for registration a fraudulent executed transfer of shares in the company, action upon which causes loss to the company. On the other hand, an estoppel is sought to be raised by the Stockbrokers to defend themselves against that indemnity, the estoppel being that the Company is not to be heard to deny the truth of the apparently regular Share Certificate identifying the fraudster as shareholder which the Stockbrokers were given to lodge with the Company together with the transfer and upon which, say the Stockbrokers, they relied to their detriment.
The legislative background
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