Gardner v Parker
| Jurisdiction | England & Wales |
| Judge | The Hon Mr Justice Blackburne,Mr Justice Blackburne |
| Judgment Date | 26 June 2003 |
| Neutral Citation | [2003] EWHC 1463 (Ch) |
| Date | 26 June 2003 |
| Court | Chancery Division |
| Docket Number | Case No: CH 1998 G No 4569 |
[2003] EWHC 1463 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London WC2A 2LL
The Honourable Mr Justice Blackburne
Case No: CH 1998 G No 4569
Malcolm McEwan (instructed by Willan Bootland) for the claimant
Ulick Staunton (instructed by Eversheds) for the defendant
Hearing dates: 10 and 11 June 2003
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 handed down may be treated as authentic.
Introduction
This is a claim for compensation for breach of fiduciary duty. The writ in the action was issued as long ago as August 1998.
It concerns the circumstances in which a company called Scoutvale Limited transferred its 80 per cent shareholding in a company called Old Hall Estates Limited to a company called Bweralley Limited. For convenience I shall refer to that transfer simply as "the transfer". At the time Scoutvale was controlled by the defendant Alan Parker. It is common ground that he and his wife were its only directors. It is also common ground that Mr Parker owned and controlled Bweralley as well. The remaining 20 per cent of the issued shares in Old Hall were held by an outsider called Mr Milling.
9 per cent of the issued shares in Scoutvale were held by a company which, at the date of the transfer, was called Barclays Development Corporation plc and which I will refer to as "BDC". BDC was also a substantial creditor of Scoutvale at the time of the transfer. In the reamended statement of claim Scoutvale's indebtedness to BDC is said to be £799,000. BDC's 9 per cent shareholding in Scoutvale is said to have been given to it by Mr Parker in or about April 1991 in purported satisfaction of a liability of £450,000 owed by him to BDC.
A few days after the transfer, BDC changed its name to Imariview Limited. BDC was itself controlled (as to 85 per cent of its issued shares) by Mr Parker who was at all material times a director of that company. It is common ground that the claimant, Rodney Gardner, was interested under a family trust in the other 15 per cent of BDC's issued shares. It is also common ground that until March 1992 he was a director of BDC as well.
The transfer was effected on or about 8 December 1992. The consideration was expressed to be £400,000 payable on deferred terms.
Mr Gardner's complaint is that the transfer was at a substantial undervalue. In his reamended statement of claim he alleges that, according to its audited accounts for the year ending 31 March 1992, Old Hall was shown to have net assets of £5,816,279. He alleges that Scoutvale's 80 per cent shareholding in Old Hall represented the substantial proportion of Scoutvale's assets. (Particulars are pleaded suggesting that at any rate at the end of March 1992 its investment in Old Hall accounted for 90 per cent or more of its overall net assets.) He complains that the transfer was procured by Mr Parker in breach of the fiduciary duties which, as a director of BDC, he owed to that company in that he acted in furtherance of his own interests (through Bweralley) at the expense, inter alia, of BDC and its assets. Re complains that BDC's 9 per cent shareholding in Scoutvale and the debt due to it from Scoutvale were thereby reduced in value to nil or to a negligible amount. As it is put in paragraph 14 of the reamended statement of claim (references to the Company being to BDC):
"14 Further, as a consequence of the transfer, the Company's assets were substantially reduced:
(1) the Company's 9 per cent shareholding in Scoutvale was reduced in value from £450,000 to nothing, or a nominal value;
(2) the value of the Company's debt due from Scoutvale was reduced to nothing, or a negligible amount."
On 21 April 1993 BDC went into creditors' voluntary liquidation. On 10 August 1998 BDC, acting by its liquidator, assigned to Mr Gardner the benefit of all rights of action and choses in action to which it was entitled including its rights of action in respect of shares owned by it. It is common ground that this included BDC's rights of action in respect of its 9 per cent shareholding in Scoutvale and the £799,000 debt.
Mr Gardner contends in these proceedings (in paragraph 16 of his re-amended statement of claim) that BDC suffered loss or damage in the amount of £1,249,000 as a result of the transfer. £1,249,000 is made up of £799,000, the amount of Scoutvale's alleged debt due to it, and £450,000, the pre-transfer value of its 9 per cent shareholding in Scoutvale. As assignee of BDC's right of action in respect of that claim, Mr Gardner seeks to recover that sum as damages or compensation for breach of fiduciary duty together with interest.
The preliminary issues
At the invitation of counsel, and with my agreement, two issues have been identified for determination as preliminary issues based upon the matters pleaded in the reamended statement of claim. They are (1) whether the duties, facts and matters pleaded by Mr Gardner in relation to the transfer are capable of amounting to a breach by Mr Parker of the pleaded fiduciary duties owed by him to BDC as its director, and (2) whether on Mr Gardner's pleaded case, assuming that the transfer was in breach of the fiduciary duties owed by Mr Parker to both BDC and Scoutvale, the losses identified in paragraphs 14 and 16 of the reamended statement of claim are recoverable by Mr Gardner.
As is apparent from their terms, I am to assume for the purpose of determining those issues that the facts and matters alleged in the re-amended statement of claim are true. They have been supplemented by various additional facts which, although not pleaded, are common ground between the parties. What I have set out in paragraphs 2 to 9 above comprises those facts and matters so far as it is relevant to recite them. It must be emphasised, however, that there has been no trial. Many matters are in issue, not least the allegation that the transfer was at an undervalue.
The only other matter that I need mention at this stage, and this also was common ground between the parties, is that Scoutvale is (and has since August 1983 been) in administrative receivership and has not been placed in liquidation.
Against that background I now come to the two preliminary issues.
Breach of fiduciary duty
In paragraph 7 of the reamended statement of claim Mr Garner has pleaded that as a director of BDC Mr Parker owed two fiduciary duties, namely (1) to act at all times in good faith in the interests and for the proper purposes of BDC and (2) not to allow his own interests to conflict with those of BDC, in particular "not to act in furtherance of his own interest at the expense of or to the detriment of [BDC] or its assets".
In paragraph 15 of the reamended statement of claim it is alleged that "in procuring the transfer Mr Parker was in breach of fiduciary duty in that he acted deliberately in furtherance of his own interests at the expense of [BDC] and its assets, by causing its 9 per cent shareholding in Scoutvale and its debt from Scoutvale to be reduced in value to nil, or a negligible amount".
For Mr Parker, Mr Staunton drew attention to well known passages in the authorities concerned with the nature of directors' duties (both fiduciary and non-fiduciary) and with the extent to which the court will interfere with the exercise of such duties. He submitted that, when procuring the transfer, Mr Parker was not exercising his powers as a director of BDC but of Scoutvale and that, as regards anything improper in the transfer, he was accountable to Scoutvale as his principal. This, he submitted, is because the shares so transferred were the property of Scoutvale, not of BDC, with the result that, on the assumed facts, any breach of duty in relation to the transfer (for example his failure to avoid placing himself in a position where his duty to his principal conflicted with his personal interest as the person owning and controlling the transferee, Bweralley) was a breach of a duty owed to Scoutvale.
In my judgment, while Mr Parker's liability to Scoutvale on the assumed facts is not in question, this is to look too narrowly at the matter.
At the time of the transfer Mr Parker was also a director of BDC. Knowing, as a director of BDC with a duty to safeguard BDC's assets, including in particular its 9 per cent shareholding in Scoutvale and its £799,000 debt, that the transfer would impact adversely upon Scoutvale's value and, therefore, upon BDC's 9 per cent shareholding in Scoutvale and the recoverability of the £799,000 debt (in that the transfer was of Scoutvale's shares in Old Hall which represented a substantial proportion of Scoutvale's assets), Mr Parker could not, consistently with his duties to BDC, simply sit back and do nothing in the face of the impending transfer. In respect of the transfer he was as much in a position of conflict as a director of BDC (as between his duty to that company and his personal interest through Bweralley as the proposed transferee of the shares) as he was as a director of Scoutvale.
The position is well illustrated in Scottish Co-operative Wholesale Society Limited v Meyer [1959] AC 324. Although in that case the issue arose in the context of a claim under section 210 of the Companies Act 1948 based upon minority oppression, the situation in which Mr Parker found himself in the instant case was akin to the position of the three nominee directors of the Society's subsidiary, Scottish Textiles & Manufacturing Co Limited. They were also directors of the Society and were aware of the latter's policy of "transferring" the subsidiary's business to a new department within the...
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