Gardner v Parker
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE JONATHAN PARKER,Lord Justice Neuberger,Mr Justice Bodey,Lord Justice Mance |
| Judgment Date | 23 June 2004 |
| Neutral Citation | [2004] EWCA Civ 781,[2003] EWCA Civ 1939 |
| Docket Number | A3/2003/2128,Case No: A3/2003/2128/CHANI CH1998G/4569 |
| Court | Court of Appeal (Civil Division) |
| Date | 23 June 2004 |
[2003] EWCA Civ 1939
Lord Justice Jonathan Parker
A3/2003/2128
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
Royal Courts of Justice
Strand
London, WC2
MR ALAN STEINFELD QC (instructed by WILLIAM BOOTLAND, 2 MOUNT STREET, MANCHESTER M2 5WQ) appeared on behalf of the Applicant.
MR ULICK STAUNTON (instructed by EVERSHEDS, CLOTH HALL COURT, INFIRMARY STREET, LEEDS LS1 2JB) appeared on behalf of the Respondent.
This is an application by Mr Rodney Gardner for permission to appeal against an order made by Blackburne J on 26th June 2003, following the hearing of preliminary issues in an action brought by Mr Gardner against Mr Alan Parker. By his order the judge dismissed the application with costs. As to costs, he directed a detailed assessment and he ordered Mr Gardner to pay £100,000 on account by 4pm on 26th September 2003, a payment which has been duly made.
Mr Gardner also applies for an extension of time in which to make the application, and for a stay of the costs order made by the judge. I understand that the amount of the costs has now been agreed at a total sum of £220,000 so that a detailed assessment is no longer required. The balance remaining unpaid is £120,000.
On 13th November 2003 Chadwick LJ directed on the papers that the application for an extension of time be adjourned to be heard on notice with the applications for permission to appeal and for a stay of the costs order to follow, if an extension of time is granted. This is the adjourned hearing.
Mr Gardner appears today by Mr Alan Steinfeld QC (who did not appear before the judge); Mr Parker appears by Mr Ulick Staunton (who did appear before the judge).
The dispute arises out of the sale by a company called Scoutvale Ltd on 8th December 1992 of its 80 per cent shareholding in a subsidiary, Old Hall Estates Ltd. The value of the 80 per cent shareholding is said to be in the region of £6 million. The sale was to a company called Bweralley Ltd for an expressed consideration of £400,000 (albeit subject to terms as to deferment of payment). There appears to be a question as to whether that consideration was in fact paid.
Scoutvale was at the material time controlled by Mr Parker, and he and his wife were its directors. Mr Parker also owned and controlled Bweralley. Nine per cent of the shares in Scoutvale were held by a company which was then called Barclays Development Corporation plc ("BDC"). Mr Parker also owned and controlled BDC, holding 85 per cent of its shares. The remaining 15 per cent of the shares in BDC were held by the trustees of a family trust in which Mr Gardner is a beneficiary. Mr Parker and Mr Gardner were at the time directors of BDC. BDC was at the material time a creditor of Scoutvale in a sum in the region of £799,000.
In August 1993 Scoutvale was placed in administrative receivership by a debenture-holder, Westpac Banking Corporation plc. In May 1994 Westpac brought proceedings against Scoutvale and Bweralley under section 423 of the Insolvency Act 1986 alleging that the sale of the shares was a transaction at an undervalue and seeking an order for the retransfer of the shares back to Scoutvale. The proceedings were compromised by, in effect, a payment of £350,000 by a third party (to whom the shares were to be sold) and a release by Scoutvale of all further claims against Mr Parker.
In the meantime, in April 1993 BDC went into creditors' voluntary liquidation, and in August 1998 Mr Gardner took an assignment from the liquidator of the benefit of (amongst other things) all rights of action in respect of shares owned by BDC (including, that is to say, its nine per cent holding in Scoutvale). For present purposes, Mr Gardner can be regarded as synonymous with BDC in that he is, in effect, pursuing claims by BDC.
In the action, which was commenced as long ago as August 1998, Mr Gardner alleges that the sale of the shares by Scoutvale to Bweralley was a sale at an undervalue. In the action he alleges that the sale was procured by Mr Parker in breach of his fiduciary duties as a director of BDC and also as a director of Scoutvale and that in so doing Mr Parker acted in furtherance of his own interests (via the purchaser, Bweralley) at the expense of BDC and its assets. Mr Gardner alleges that by reason of such breach the value of the debt owed to BDC by Scoutvale and the value of BDC's nine per cent shareholding in Scoutvale were reduced to nil or to a negligible amount, on the footing that (as Mr Gardner alleges) the shareholding in Old Hall Estates Ltd represented by far the greater part of Scoutvale's overall assets at the material time. Mr Gardner claims compensation in a sum in the region of £1.2 million.
Two preliminary issues were directed to be heard. The first issue was whether the facts and matters pleaded by Mr Gardner were capable of amounting to a breach by Mr Parker the fiduciary duties which he owed to BDC as a director of BDC. The judge answered the first preliminary issue in the affirmative and there is no cross-appeal by Mr Parker in relation to that issue. The second preliminary issue was whether, on Mr Gardner's pleaded case, and assuming that the sale was in breach of fiduciary duties owed by Mr Parker to BDC and to Scoutvale, the losses claimed were recoverable by Mr Gardner (that is to say, in effect, by BDC). The judge answered this preliminary issue in favour of Mr Parker. That conclusion led to his order dismissing the action. The judge refused permission to appeal, hence the present applications.
The judge addressed the second preliminary issue in paragraphs 25 to 64 inclusive of his judgment under the heading "The recoverability of the pleaded losses". In paragraph 27 the judge quotes the Court of Appeal's statement of the relevant principle in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 at 222 —223, as follows:
"But what [a shareholder] cannot do is to recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a 'loss' is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only 'loss' is through the company, in the diminution in the value of the net assets of the company…"
The judge also referred to subsequent authorities in which that principle (I will refer to it as the 'no reflective loss' principle) has been further developed, that is to say the decision of the House of Lords in Johnson v. Gore Wood [2002] 2 AC 1, and the decisions of this court in Giles v. Rhind [2003] 2 WLR 237, and Shaker v. Al-Bedrawi [2003] 2 WLR 922 (especially per Peter Gibson LJ at page 926). The judge quoted extensively from the speeches of Lord Bingham and Lord Millett in Johnson v. Gore Wood.
In paragraph 33 of his judgment the judge concluded that the loss which BDC suffered as a nine per cent shareholder in Scoutvale, in consequence of the alleged sale at an undervalue, fell clearly within the 'no reflective loss' principle; indeed, the contrary was not argued by counsel appearing for Mr Gardner on that occasion, Mr Malcolm McEwan. The judge then turned to Mr McEwan's argument that the 'no reflective loss' principle nevertheless did not apply since BDC was suing for damage caused by Mr Parker's alleged breach of duty as a director of BDC, being damage caused to BDC's own assets (which happened to include its nine per cent shareholding in Scoutvale).
As to that argument the judge said this (in paragraph 35 of his judgment):
'35. In my judgment, these matters do not have the consequence that the no reflective loss principle does not apply. The question is whether the loss claimed is merely reflective of some or all of the loss which Scoutvale has suffered and which will be made good if it enforces its full rights against Mr Parker as the party responsible for the fact that it suffered its loss. The fact that BDC's action against Mr Parker is not brought in its capacity as a shareholder of Scoutvale is irrelevant. What is relevant is that the loss of which it (BDC) complains is a loss suffered by it in its capacity as a shareholder (and creditor) of Scoutvale by reason of the damage which, in its turn, Scoutvale has suffered."
The judge then conducted a detailed analysis of Shaker in the Court of Appeal. In paragraph 40 of his judgment he made the following observations about that case:
'40. What was critical in the Court of Appeal's reasoning in that case as to the applicability of the no reflective loss principle was whether Mr Shaker's claim was in substance a claim to moneys to which ANA Inc itself had a claim. This was on the basis, as was made clear in paragraph 81 of the judgment, that "consistently with the reasoning in Johnson's case the Prudential principle would bar Mr Shaker's claim for what in effect reflects part of the loss suffered by ANA Inc" and that "it matters not that the causes of action of Mr Shaker and ANA Inc are different"."
In paragraph 41 the judge concluded that the position is the same in the instant case. He continued:
"It does not matter that Mr Gardner's (ie BDC's) and Scoutvale's causes of action are different. The essential point is that Mr Gardner's claim against Mr Parker is in substance a claim for compensation in respect of the same loss to which Scoutvale has a claim against him."
The judge then turned to Mr McEwan's further argument...
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