HAMILTON Appellants (Pursuers) and Others against ALLIED DOMECQ Plc Respondents (Defenders)
| Jurisdiction | England & Wales |
| Judge | LORD HOFFMANN,LORD SCOTT OF FOSCOTE,LORD RODGER OF EARLSFERRY,LORD WALKER OF GESTINGTHORPE,LORD NEUBERGER OF ABBOTSBURY |
| Judgment Date | 11 July 2007 |
| Neutral Citation | [2007] UKHL 33 |
| Court | House of Lords |
| Docket Number | No 9 |
| Date | 11 July 2007 |
[2007] UKHL 33
HOUSE OF LORDS
Appellate Committee
Lord Hoffmann
Lord Scott of Foscote
Lord Rodger of Earlsferry
Lord Walker of Gestingthorpe
Lord Neuberger of Abbotsbury
and others
Appellants:
Alistair Clark
(Instructed by Simpson & Marwick, Edinburgh)
Respondents:
Richard Keen QC
Douglas Fairley
(Instructed by Maclay Murray & Spens, Edinburgh)
My Lords,
I have had the advantage of reading in draft the opinion of my noble and learned friend Lord Rodger of Earlsferry, and for the reasons he gives I too would dismiss the appeal.
My Lords,
I have had the advantage of reading in draft the opinion of my noble and learned friend Lord Rodger of Earlsferry, and for the reasons he gives I too would dismiss this appeal.
My Lords,
The first pursuer, Mr John Stewart Hamilton, and his business associate, Mr Kalo, were at one time shareholders in the Highland Spring company which successfully developed the well known brand of mineral water, based on a spring in the area of the village of Blackford in Perthshire. For a number of years Mr Hamilton held a senior position in the company, but eventually left as a result of a dispute.
The Gleneagles Maltings Company also owned premises and water rights in the village of Blackford, but it lacked the capital to develop them. Mr Hamilton was introduced to Gleneagles Maltings and, from his knowledge of the area, he advised that the water sources in question were unsatisfactory for commercial development. He considered, however, that two big springs on the Gleneagles Estate were suitable for such development if the necessary rights could be acquired.
Mr Hamilton and Mr Kalo were shareholders in Stebbings Inc, the second pursuers, a company incorporated in Panama. To take the potential development of the big springs forward, Gleneagles Maltings agreed to sell its premises and spring to the Gleneagles Spring Waters Company Limited ("Gleneagles") in return for a 3% shareholding in Gleneagles, the remaining 97% being held by Stebbings Inc. (The 3% holding was eventually bought out and does not feature further in the story.) By about 1990, Gleneagles had concluded potentially valuable agreements for the supply of water from the springs on the Gleneagles Estate and had begun producing a small quantity of water to be sold under the Gleneagles brand name. But the company was not in a position to take the development of the business forward by itself.
One possibility was that Gleneagles would sell out completely to another company, such as Evian. Another was that it would enter into a distribution deal with another company that would provide the necessary distribution network for Gleneagles water. The third possibility was that Gleneagles would join with another company that would invest in Gleneagles, but would also provide a suitable distribution network.
Mr Hamilton considered that Gleneagles water should be marketed as a high quality brand. He therefore favoured following the example of Perrier who had first successfully established their brand in hotels, restaurants and public houses - the "HORECA" Hotels, Restaurants and Catering sector, or "on-trade". They had then used this success to build up their "off-trade" sales in supermarkets and other grocery and off-licence outlets. The general idea was that, if you had enjoyed drinking the product in a congenial atmosphere on an evening out, this experience would persuade you to select the product when you later saw it on the shelves of your supermarket. Mr Hamilton favoured a similar strategy for Gleneagles water.
On Mr Hamilton's view, therefore, it was critical to have the necessary arrangements in place from the outset for distributing the water to the on-trade. So, when contemplating the various possible business strategies under which the pursuers would retain an interest, the arrangements for distribution were important for him. In particular, this was so when - after a potential buy-out had fallen through - he decided, in December 1991, to try to find a company to take a stake in Gleneagles.
Mr Derek Douglas of Fraser & Partners (Business Managers), who had already been involved in the affairs of Gleneagles, put together a Business Plan. At Mr Hamilton's suggestion Mr Douglas contacted the defenders, who were then known as Allied-Lyons. Allied-Lyons were interested and one of their directors, Mr David Beatty, was asked to carry on discussions on their behalf. Initially, he was corporate development director of their subsidiary, The Hiram Walker Group Ltd, which ran their wines and spirits division, but in March 1992 he became deputy chairman of J. Lyons and Company Limited ("Lyons"), a wholly owned subsidiary of the defenders, which ran their food manufacturing sector. The defenders admit on record that Mr Beatty was given authority to bind them and to make representations on their behalf in his discussions with Mr Hamilton, who acted both in a personal capacity and for the second pursuers.
In fact, to begin with, Mr Hamilton's discussions were with Mr Stan Walters whom Mr Beatty had asked to evaluate the commercial and financial prospects of Gleneagles. Mr Beatty may have been present, however, for part of a meeting towards the end of March 1992. From then onwards the discussions were between Mr Hamilton and Mr Beatty.
In their pleadings, the case for the pursuers was that in the course of their discussions "Mr Beatty repeatedly represented that the defenders' distribution arrangements and facilities would be made available in the knowledge that the pursuers were placing reliance on the said representation…." This formulation of the alleged misrepresentation makes no specific reference to distribution in the on-trade. Nevertheless, Mr Hamilton's evidence at proof - which the Lord Ordinary (Abernethy) accepted - was, in essence, that he had explained to Mr Beatty the need for distribution to both the on-trade and the off-trade from the outset, the strategy being that success in the on-trade would breed success in the off-trade. As he saw it, the defenders were to assist Gleneagles to have their product distributed to the on-trade, especially through Britvic - by which he meant Britvic Soft Drinks Limited.
The case for the pursuers as advanced in submissions on their behalf after proof was that Mr Beatty had represented that the defenders would indeed follow that strategy. By contrast, although Mr Beatty had difficulty in remembering the discussions, as will be seen in more detail later, his clear position was that the initial move on distribution was always intended to be into the off-trade. The Lord Ordinary resolved this issue in the pursuers' favour in a short passage at the end of para 45 of his judgment:
"Having considered the evidence on this critical point I am satisfied that Mr Beatty did not communicate to Mr Hamilton that this was his strategy. On the contrary, I am satisfied that Mr Beatty led Mr Hamilton and Mr Douglas to believe that he agreed with Mr Hamilton that Gleneagles should try to penetrate the on-trade from the beginning as well as the off-trade and that the defenders' distribution arrangements and facilities for both the on- and off-trades would be made available to Gleneagles. Had it been otherwise I am satisfied that Mr Hamilton would not have entered into the Agreement of 24 November 1992."
As the Lord Ordinary says, a subscription agreement was concluded on 24 November 1992 under which Lyons became the majority shareholders in Gleneagles, the pursuers together retaining a minority shareholding.
Thereafter, preparations got under way for the development of Gleneagles water. After some trials, the product was eventually launched on the market in March 1994. Mr Beatty had retired early in 1993 and so had nothing to do with the business after that. Leaving all kinds of other matters on one side, the defenders accept that, when Mr David Potter was seconded to Gleneagles in about August 1993, his brief was to promote the product initially in the off-trade. Development in the on-trade would follow later. Again, the Lord Ordinary stated his conclusion shortly, at para 58
"In any event, whatever the reason all I can say is that on the evidence the defenders did not assist Gleneagles in getting access to Britvic or to the on-trade in general."
Unfortunately, the business of Gleneagles did not prosper and in February 1998 Gleneagles was put into administration. By that time the pursuers' shareholding was virtually worthless.
In their pleas-in-law in the present proceedings the pursuers claim damages by way of reparation for the loss and damage which they say they suffered as a result of the fault and negligence of Mr Beatty, for which the defenders are liable, in inducing them to enter into the subscription agreement. Although these pleas-in-law are not very informative, the pursuers' case before both the Lord Ordinary and the Inner House was based on alleged negligent misrepresentation by Mr Beatty in the course of his discussions with Mr Hamilton which led to the subscription agreement. As I have pointed out, the specifics of that alleged misrepresentation developed somewhat between the drafting of the pursuers' averments on record and the formulation of their case after proof. Essentially, they claimed that, relying on what Mr Beatty had told Mr Hamilton, they entered into the subscription agreement on the basis that Lyons would assist them, from the outset, to have their product distributed to the on-trade through Britvic. This did not happen and the business failed, so making their shareholdings virtually worthless.
On 1 August 2003 the Lord Ordinary held...
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