Chaston v SWP Group Plc
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Buxton,Lord Justice Ward |
| Judgment Date | 20 December 2002 |
| Neutral Citation | [2002] EWCA Civ 1999 |
| Docket Number | Case No: A2/2002/1029 QBACF |
| Court | Court of Appeal (Civil Division) |
| Date | 20 December 2002 |
[2002] EWCA Civ 1999
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
OF THE HIGH COURT (Mr Justice Davis)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Ward
Lord Justice Buxton and
Lady Justice Arden
Case No: A2/2002/1029 QBACF
Michael Todd QC and David Cavender (instructed by Theodore Goddard) for the Appellant
Mark Cunningham QC (instructed by Lyons Davidson) for the Respondent
This is an appeal by the defendant in this action (whom I will call "SWP") against part of the order of Mr Justice Davis sitting in the Queen's Bench Division of the High Court dated 26 April 2002. The part of the order in question is that part of the judge's order which dismissed SWP's Part 20 claim against the respondent to this appeal, Mr Robert Chaston (to whom I will refer as "Mr Chaston"), for damages for breach of fiduciary duty for having procured, or connived in, the grant by DRC Polymer Products Ltd (formerly Dunstable Rubber Company Ltd) (referred to below as "DRC"), of which he was a director and also a major shareholder, of financial assistance for the purpose of the acquisition by SWP of the shares in the parent of DRC, Dunstable Rubber Company Holdings Ltd (hereinafter called "DRCH"), contrary to section 151 of the Companies Act 1985. The alleged financial assistance is the incurring of liability to Deloitte and Touche (hereinafter called "D&T") to pay certain fees, and/or the payment of those fees. The consideration for the acquisition was a mixture of cash, loan stock and deferred consideration having a maximum aggregate value of £2.55m. The acquisition did not in SWP's view turn out to be a beneficial transaction for reasons which need not concern us on this appeal.
The appeal raises three issues, which are of some importance in practice:-
i) was the commitment to pay these fees or the payment of these financial assistance at all?
ii) to which party was the financial assistance given?
iii) was the assistance "for the purpose of" the acquisition by DRCH of the share capital of DRCH?
The fees in question are the fees represented by the invoices issued by D&T particularised below:-
Invoice No. Date of Invoice Amount of Invoice Amount alleged by To whom invoice Narrative in invoice
including VAT SWP to have been rendered paid in breach of s.151
01.12.97 £3,525.00£3,525.00 DRCFor professional services
rendered in respect of the
potential sale of theentire share capital of[DRCH].
22.10.97 £8,812.50£8,812.50DRCPayment on account forprofessional services inrespect of assistancegiven on the sale of[DRCH] to [SWP].
02.10.97 £7,775.00£1,468.75DRCFor professional servicesfor the period ended 15September 1997.
15.02.98 £5,875.00£5,875.00DRCFor professional servicesfor the period ended 30November 1997. Duringthis period we performedthe tax related work inconnection with the saleof [DRCH] to [SWP] [inaddition] to the auditwork carried out byDavid Isherwood. Thework included a meetingand correspondence withGeoffrey Smith withregard to the past andpresenttax affairs of theDRC Group togetherwith telephoneconversations with[Coopers & Lybrand].
Total:£19,681.25
The first and second invoices were rendered by the audit department of D&T's St Albans office. The third and fourth invoices were rendered by the tax department of D&T's St Albans office. Only part of the third invoice is claimed, namely the sum of £1,250 plus VAT, which D&T later said was for "initial work in respect of the sale of the Dunstable Rubber Group".
The fourth invoice was originally for the sum of £12,000 and this amount was originally billed to Mr Chaston personally. D&T agreed to reduce the invoice amount and to attribute part of the work to DRC in replacement of their invoice for £12,000. The original invoice stated that the fourth invoice "replaces our previous invoice … dated 10 December 1997." The judge found that Mr Chaston redacted the invoice for the purposes of disclosure so that this sentence did not appear. The judge found that Mr Chaston did this with a view to suppressing the reference to the earlier invoice "his motive being to forestall providing SWP with ammunition for a claim that he had wrongly procured DRC to pay his personal bills" (judgment, paragraph 176).
SWP brought its Part 20 claim as assignee from DRC of all its claims which it might have against Mr Chaston in respect of these invoices.
Section 151(1) and (2) provide as follows:—
"151 Financial assistance generally prohibited
(1) Subject to the following provisions of this Chapter, where a person is acquiring or is proposing to acquire shares in a company, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of that acquisition before or at the same time as the acquisition takes place.
(2) Subject to those provisions, where a person has acquired shares in a company and any liability has been incurred (by that or any other person), for the purpose of that acquisition, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability so incurred.
(3) If a company acts in contravention of this section, it is liable to a fine, and every officer of it who is in default is liable to imprisonment or a fine, or both.
152 Definitions for this Chapter
(1) In this Chapter—
(a) "financial assistance" means—
(i) financial assistance given by way of gift,
(ii) financial assistance given by way of guarantee, security or indemnity, other than an indemnity in respect of the indemnifier's own neglect or default, or by way of release or waiver,
(iii) financial assistance given by way of a loan or any other agreement under which any of the obligations of the person giving the assistance are to be fulfilled at a time when in accordance with the agreement any obligation of another party to the agreement remains unfulfilled, or by way of the novation of, or the assignment of rights arising under, a loan or such other agreement, or
(iv) any other financial assistance given by a company the net assets of which are thereby reduced to a material extent or which has no net assets;
(b) "distributable profits", in relation to the giving of any financial assistance—
(i) means those profits out of which the company could lawfully make a distribution equal in value to that assistance, and
(ii) includes, in a case where the financial assistance is or includes a non-cash asset, any profit which, if the company were to make a distribution of that asset, would under section 276 (distributions in kind) be available for that purpose, and
(c) "distribution" has the meaning given by section 263(2).
(2) In subsection (1)(a)(iv), "net assets" means the aggregate of the company's assets, less the aggregate of its liabilities ("liabilities" to include any provision for liabilities or charges within paragraph 89 of Schedule 4).
(3) In this Chapter—
(a) a reference to a person incurring a liability includes his changing his financial position by making an agreement or arrangement (whether enforceable or unenforceable, and whether made on his own account or with any other person) or by any other means, and
(b) a reference to a company giving financial assistance for the purpose of reducing or discharging a liability incurred by a person for the purpose of the acquisition of shares includes its giving such assistance for the purpose of wholly or partly restoring his financial position to what it was before the acquisition took place.
153 Transactions not prohibited by s 151
(1) Section 151(1) does not prohibit a company from giving financial assistance for the purpose of an acquisition of shares in it or its holding company if—
(a) the company's principal purpose in giving that assistance is not to give it for the purpose of any such acquisition, or the giving of the assistance for that purpose is but an incidental part of some larger purpose of the company, and
(b) the assistance is given in good faith in the interests of the company.
(2) Section 151(2) does not prohibit a company from giving financial assistance if—
(a) the company's principal purpose in giving the assistance is not to reduce or discharge any liability incurred by a person for the purpose of the acquisition of shares in the company or its holding company, or the reduction or discharge of any such liability is but an incidental part of some larger purpose of the company, and
(b) the assistance is given in good faith in the interests of the company.
(3) Section 151 does not prohibit—
(a) a distribution of a company's assets by way of dividend lawfully made or a distribution made in the course of the company's winding up,
(b) the allotment of bonus shares,
(c) a reduction of capital confirmed by order of the court under section 137,
(d) a redemption or purchase of shares made in accordance with Chapter VII of this Part,
(e) anything done in pursuance of an order of the court under section 425 (compromises and arrangements with creditors and members),
(f) anything done under an arrangement made in pursuance of [section 110 of the Insolvency Act] (acceptance of shares by liquidator in winding up as consideration for sale of property), or
(g) anything done under an arrangement made between company and its creditors which is binding on the creditors by virtue of [Part I of the Insolvency Act].
(4) Section 151 does not prohibit (a) where the lending of money is part of the ordinary...
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