J T Kelly v B E Baker
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Cockerill |
| Judgment Date | 19 July 2022 |
| Neutral Citation | [2022] EWHC 1879 (Comm) |
| Docket Number | Case No: CL-2020-000620 |
| Court | Queen's Bench Division (Commercial Court) |
[2022] EWHC 1879 (Comm)
Mrs Justice Cockerill DBE
Case No: CL-2020-000620
IN THE HIGH COURT OF JUSTICE
OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Sitting at Birmingham Civil Justice Centre
33 Bull Street
Birmingham
B4 6DS
Mr Mark Harper Q.C. and Mr Ali Tabari (instructed by Weightmans LLP) for the Claimants
Mr William Buck and Mr Alfred Artley (instructed by RPC) for the Defendants
Hearing dates: 9,11,12,13,16,17,18,19,23,25,26 May 2022
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Tuesday 19 July 2022 at 10:30am.
Introduction
This is an unusual Commercial Court case in modern terms. It is a significant case in terms of size – it concerns a sale of a business worth £100 million, and the claim is for £37 million. However, it is also an intensely personal dispute. The company in question is a part of a business empire based in the Birmingham area created by a single family – the Kelly family – working in harmony over two generations.
Tragically, this case has resulted in a major family dispute. The family harmony which created the empire has to all appearances been destroyed. Members of the family appeared as witnesses on opposing sides. One of the documents before me was an unfair prejudice petition which the Claimant (“Mr Kelly”) proposes to issue against the family companies and his brother (“Mr Jim Kelly”) arising out of his removal from the family firms.
What lies behind this is a sale of part of the empire. In essence, by a Sale and Purchase Agreement (“SPA”) dated 17 March 2017 the Kelly family sold two companies, Demolition Services Midlands Group Holdings (“DSMGH”) and St Francis Group (“SFG”). The transaction (“the Transaction”) completed on 31 March 2017.
The nature of the sale was a management buy-out (“MBO”) to a group of purchasers defined in the SPA. Critically that group was headed up by the Defendants (“Mr Baker” and “Mr Braid”), both of whom had worked in or for the companies for years. The sale was supported by corporate financiers. The price was a little over £100m subject to a series of adjustments set out in the SPA.
The claim, in summary, is that Mr Kelly says that he was not told that the sale was an MBO and that the Defendants, whom he trusted implicitly because of the relationship between them, breached fiduciary duties to him and the Second Claimant — a company which he owns and controls. He also says that the Defendants told him — inaccurately and fraudulently — that they would achieve the best possible price for the Kelly family and (later) that the value of the companies was reflected in the sale price. He says that but for these facts the sale would not have gone ahead, and a sale for £200 million would have been achieved. Accordingly, since his share of the sale was £37 million, he says that he lost £37 million by reason of the breaches/misrepresentations.
In closing it was realistically accepted by Mr Harper QC for Mr Kelly that the case on fraudulent misrepresentation was unlikely to prevail if the case on breach of fiduciary duty did not succeed. This was an entirely correct concession for reasons which will become apparent.
The centre of gravity in this case is therefore the question of whether the Defendants owed and breached fiduciary duties to the Claimants – and in reality to Mr Kelly. There is also a factual issue based on expert evidence, which goes to the quantum of any claim, as to whether the sale price was an undervalue.
The Trial
The trial has been conducted over three weeks as a live hearing with remote transcription. Bearing in mind the geographical centre of gravity of the case, which concerns a Birmingham company, with the majority of witnesses in the Birmingham area and a considerable portion of the legal teams based there also, I ordered that the case should be heard in the Civil Justice Centre in Birmingham.
The trial has been notable for the co-operation and courtesy with which it has been conducted. It was also pleasing to see that junior counsel were each able to conduct a portion of the advocacy, with Mr Tabari ably introducing and cross-examining some of the witnesses, and Mr Artley assisting me with a clear and helpful reply on the expert evidence in closing submissions.
Another notable feature has been the fact that the witness statements generally did (as they should) convey a real sense of the witness's own voice and approach. As such they were more than usually useful to me.
All of the witnesses, both factual and expert, were in my assessment generally honest witnesses. The witnesses called for the Claimant were Mr Kelly himself, Mr Dunn, Mr Simpson and Mrs Owens. Of these, the only substantial witness was Mr Kelly. Mr Kelly presented – as perhaps might be expected – as someone who was very much upset by the turn which events have taken. While he did his best to explain his position, his evidence was not always clear. This is possibly because he has a number of grievances some of which, though outside the scope of this trial, he sees as linked to the issues which I have to decide. While I was invited to conclude that he deliberately obfuscated, the impression which I gained was that where his evidence was unclear it in most cases reflected a lack of clarity in his own consideration of the facts.
For the Defendants the witnesses were Mr Baker, Mr Braid, Mr Jim Kelly, Mr Currie and Mr Williams. Mr Baker was plainly nervous, but gave his evidence clearly and earnestly. He thought carefully about his evidence, pausing when necessary for reflection. He was an impressive witness. Mr Braid was a down to earth and refreshingly frank witness, whose evidence had the occasional touch of humour.
Of the other witnesses, Mr Jim Kelly's evidence had at points a familial resemblance to that of his brother, being less clear and focussed than that of the Defendants. He was up-front about lacking clear recollection of the chronology of events. In the main points of his evidence however he was clear and frank to the point of informality, and on occasion provided compellingly vivid evidence. Mr Currie was a less than enthusiastic witness. It was clear that he would rather not have been present in court and that on occasion he regarded the questions as unrealistic. Having said that, he gave his evidence straightforwardly, if with considerable caution about where he was being led by the questioning. I reject the suggestion that he was less than open. His answers were direct and sometimes either terse or forceful. He was plainly a robust businessman who was prepared to accept and deal plainly with some documents which were difficult for him.
Inevitably I have preferred the evidence of one witness over another at certain points, but where recollections differed between the factual witnesses I am entirely persuaded that they did so via the normal processes of imperfect and mutable recollection, which are naturally affected by subjective factors.
Where views differed between the experts it was either because of the range of reasonable difference in subjects which permit of a spectrum of answers, or because of such factors as different starting points and exercises conducted. I will deal with key points of difference at the points where they are relevant in the judgment.
I shall therefore first consider the circumstances in which a fiduciary duty could arise in this case. As to this point, the critical feature is that it is necessary for Mr Kelly to establish that a duty was owed to him – the Second Claimant's claim being entirely subsidiary to his.
Fiduciary Duties — the Law
The parties both accepted as a starting point for this topic the dictum from Bristol & West Building Society v Mothew [1998] Ch 1 at 18 that a fiduciary is “ someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence”. The modern iteration of this principle is to be found in Sheikh Tahnoon Bin Saeed Bin Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm) [2018] 1 CLC 216 where at [159], Leggatt LJ explained that “ fiduciary duties typically arise where one person undertakes and is entrusted with authority to manage the property or affairs of another and to make discretionary decisions on behalf of that person.”
But this case involves an allegation of fiduciary duty which falls outside this archetype. This is not a conventional case of a director owing fiduciary duties to a company. It is a case of individuals, one of whom was not a director, owing duties to an individual shareholder who was a director.
Thus stress was placed by the Claimants on the passage from Snell's Equity, 34th ed. at 7-005 that;
“the courts have consistently declined to provide a definition, or even a uniform description, of a fiduciary relationship, preferring to preserve flexibility in the concept…[The] ‘fiduciary relationship is a concept in search of a principle’.”
It was accepted on both sides that a fiduciary relationship (i) can arise outside the archetypal circumstances and (ii) need not include an explicit undertaking to act for or on behalf of another. The question is just how far that line extends; however, it is clear that it is not a common circumstance. In Al Nehayan Leggatt LJ said in terms that “ it is exceptional for fiduciary duties to arise other than in certain...
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Fiduciary Duties: When Can They Arise Outside The Established Categories Of Fiduciary Relationships?
...an explicit undertaking. The judgment suggests that such cases will be exceptional or at least uncommon: Kelly & Anor v Baker & Anor [2022] EWHC 1879 (Comm). The court considered that the hallmark of cases where a fiduciary duty has been recognised in the absence of an express undertaking i......