Geoffrey John Mitchell and Another v Buckingham International Plc and Others
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE ROBERT WALKER |
| Judgment Date | 16 February 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J0216-10 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | CHANI 97/1645/3 |
| Date | 16 February 1998 |
[1998] EWCA Civ J0216-10
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
COMPANIES COURT
(MR JUSTICE HARMAN)
Royal Courts of Justice
The Strand
London
The Lord Chief Justice of England
(Lord Bingham of Cornhill)
Lord Justice Judge
and
Lord Justice Robert Walker
CHANI 97/1645/3
In The Matter of Buckingham International Plc and In The Matter of the Insolvency Act 1986
MR ROBIN HOLLINGTON (instructed by Messrs Comptons, London NW1 7AN)appeared on behalf of THE APPELLANTS
MR GABRIEL MOSS QC and MR WILLIAM TROWER (instructed by Messrs Clifford Chance, London EC1A 4JJ) appeared on behalf of THE RESPONDENT
Monday 16 February 1998
LORD JUSTICE ROBERT WALKER (Giving the judgment of the court): This is an appeal by Mr Geoffrey Mitchell and Mr Louis Holloway ("the appellants") against an order of Harman J made in the Companies Court on 5 November 1997 dismissing an application made by them in the liquidation of Buckingham International plc ("the company"). The appeal is brought with the leave of the Judge. The company is a nominal respondent to the appeal and its liquidators are the active respondents.
The matter has a long and (for the appellants) bitter history and it has had a disturbed procedural course. It has raised problems in two areas of the law of corporate insolvency. The first (which was resolved by a different constitution of this court on 21 February 1997) was a problem of cross-border insolvency: that is, as to competing jurisdictional claims when a company incorporated in one jurisdiction becomes insolvent with assets and liabilities situated in other jurisdictions. The other problem (which is the subject of this appeal) is as to the power of the Companies Court (either by analogy with section 183 of the Insolvency Act 1986 or otherwise) to override, in exceptional circumstances, the general rule that where a judgment creditor is proceeding to execution or attachment he may not retain the benefit of it against a liquidator unless he has completed the execution or attachment before the commencement of the winding up.
In this case the crucial date is 21 May 1996, when a petition was presented for the winding-up of the company, and Knox J (on a ex parte application) appointed two licensed insolvency practitioners as provisional liquidators. The winding-up order followed on 10 July 1996. But in order to understand the background it is necessary to go ten years back, to a written agreement dated 7 February 1986 by which the appellants agreed to sell to the company (then named Leisuretime International plc) the whole share capital of the company called Worldwide Dryers Ltd ("Worldwide") of which the appellants were shareholders and directors. Worldwide had a promising but underfunded business in the sale and leasing of hot-air hand dryers.
We have referred to the agreement as a sale but in fact it took the form of two options. The company had a call option to acquire 90 per cent of the shares in Worldwide for the nominal sum of £2, and the appellants had a put option to sell the remaining 10 per cent at a price calculated by a formula depending on profits as shown in the audited accounts for the year to 31 October 1987. A sum equal to 175 per cent of the net profits, subject to various adjustments, was to be paid by three instalments starting on 31 January 1988.
The agreement was renegotiated in June 1986 and again in September 1986. In October 1986 the company exercised its call option and took control of Worldwide. At that time the appellants could, despite the renegotiation, expect to obtain a sum of the order of £3m on the exercise of their put option. In the event they have, ten years on, received nothing whatever (except for some security for costs released to the legal aid fund).
These matters are described both in the judgment of Harman J which is appealed from and—in a good deal more detail—in the long and thorough judgment of Ferris J given on 18 July 1994 when he found for the appellants on their counterclaim in an action (Harman J called it a "pre-emptive strike") brought against them in 1988 by the company and Worldwide (then a 90 per cent subsidiary of the company). We do not wish to repeat unnecessarily matters of background history which are already set out in those judgments. But it is necessary to make some reference to them in order to assess the submission, central to the appellants' case, that the circumstances are wholly exceptional and that the Judge erred in law in failing to grant relief on that basis.
The company's action followed a period of deteriorating relations between the appellants and Worldwide's new top management, including Mr Roger Frye, who was the company's chief executive and also became, in effect, chief executive of Worldwide. The appellants remained directors but they were excluded from any real part in the management of Worldwide's business and indeed from Worldwide's premises. The trouble had begun in June 1986 when accountants working on Worldwide's accounts sent the company a management letter containing serious criticisms of the appellants. These criticisms were centred on (but not confined to) so-called 'double funding' of leased dryers, in respect of which Worldwide obtained finance by the block discounting of rental receipts. This 'double funding' (which is reminiscent, on a much smaller scale, of the computer leasing problems which brought down Atlantic Computers plc and British and Commonwealth Holdings plc) was examined by Ferris J in some detail, but he made no specific findings on it in his judgment since he was concerned only with the appellants' counterclaim. It seems right to assume that these complaints may not have been wholly without substance (going to the appellants' inexperience rather than lack of probity) but they were raised (as Ferris J put it)
"as part of a stratagem adopted by [the company] to secure renegotiation of the option agreement, which [the company] feared might lead to an unacceptably high price for the shares covered by the put option".
In the event the put option was never exercised and the company acquired the remaining 10 per cent of the shares in Worldwide under a further call option granted as one term of the renegotiation (under another term the appellants became small shareholders in the company). Worldwide's accounts for 1986-7 were not certified until 1 October 1988 and showed a loss. By then matters had moved on in that on 1 December 1987 the company entered into an agreement with Initial plc or one of its group companies for the sale of the businesses of Worldwide and its subsidiaries (but not the shares in any of those companies) for a cash consideration amounting (after allowance for liabilities which remained with Worldwide) of the order of £6m. The sale was completed on 7 January 1988. The position shortly before the issue of the writ by the company and Worldwide was summarized as follows by Harman J:
"On 7 January 1988 [the company] sold the business of Worldwide to the Initial group of companies for £6m. Thus the £2 paid for 90 per cent of the shares in Worldwide plus whatever turned out to be the price payable for the outstanding 10 per cent of the shares—a price not expected according to the published opinion of the [company's] board to be substantial—had produced a realization for [the company] of £6m in less than two years".
Yet the company and Worldwide instructed well-known city solicitors to sue the appellants for damages for alleged breaches of warranty and also (contrary to the apparent terms of the option agreements) for repayment of substantial sums on their director's loan accounts with Worldwide. It is not surprising that Ferris J, in his moderately phrased judgment, described those in control of the company as having "a commercially ruthless attitude, to put it no higher". In the light of a memorandum dated 20 January 1986 from Mr Frye to Mr Timothy Aitken (both then on the company's board) he might have used stronger language.
Having issued the writ on 12 February 1988 the plaintiffs avoided serving a statement of claim until 1 May 1990. The appellants obtained legal aid and were represented by a small provincial firm which may not have been up to the task. In the meantime the company's solicitors wrote that any discussion of the matter at its annual general meeting or its board meetings would be inappropriate because of pending litigation. Harman J said,
"On the basis that litigation is a contest of skills it is clear that Ashursts were playing very well. If litigation is about the obtaining of justice at a fair trial it is equally clear that that process was wholly obstructed".
After the statement of claim was finally served the appellants changed their solicitors and put in a defence and (later) a counterclaim. There were serious delays on their part at that stage. Eventually the action and counterclaim were set down on 24 October 1991 and a fixed date (7 March 1994) obtained for the trial, which was estimated to last for 15 days.
In the meantime control of the company had changed hands. Until 1988 its controlling shareholders were, directly or indirectly, members of the Aitken family or their trustees. They were succeeded by members of the Jivraj family. The company's name was changed to its present name. In 1991 the company's solicitors wrote to its board of directors (whose personnel had changed with the change of shareholders) pointing out (not for the first time) that their advice...
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