John Corbitt Barnsley and Others v Philip Noble

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Nugee
Judgment Date31 July 2014
Neutral Citation[2014] EWHC 2657 (Ch)
Docket NumberCase No: HC10C03676
Date31 July 2014

[2014] EWHC 2657 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

Before:

Mr Justice Nugee

Case No: HC10C03676

Between:
(1) John Corbitt Barnsley
(2) Gillian Elizabeth Noble
(3) LGL Trustees Limited
(4) LGL Nominees Limited
Claimants
and
Philip Noble
Defendant

Mr Romie Tager QC & Mr Justin Kitson (instructed by Addleshaw Goddard LLP) for the Claimants

Mr Joe Smouha QC, Mr Ciaran Keller&Mr Siddharth Dhar (instructed by Debevoise & Plimpton LLP) for the Defendant

Hearing dates: 3–6, 9–13, 16–20 December 2013 / 13–17, 20–22, 29–31 January / 3–4 February 2014

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 as handed down may be treated as authentic

Mr Justice Nugee Mr Justice Nugee

Introduction

1

This action is the second round of litigation arising out of the demerger of the Noble Organisation. The Second Claimant, Mrs Gillian Noble, is the widow of Michael Noble who died in April 2006. The Defendant, Philip Noble, is Michael Noble's younger brother. I will refer to them, without meaning any disrespect, as "Gill", "Michael" and "Philip" respectively. Michael and Philip built and ran an extremely successful entertainments and restaurant group that included amusement arcades, bingo halls, nightclubs and the Brighton Pier. They also built up a large property empire. The whole business was known as the Noble Organisation ( "Nobles"), although it was run through a number or companies and partnerships. Before Michael's death Nobles was owned by Michael and Philip and a number of settlements set up for the benefit of their respective families. The two brothers had equal interests in Nobles, each brother holding roughly 1/3 in his own right, with another 1/6 held by trustees of his family's settlements.

2

After Michael's death agreement was reached to divide these interests up so that, very broadly, what is referred to as "Gill's side" acquired the property interests and what is referred to as "Philip's side" acquired the trading businesses. Both parties have used these labels but not entirely consistently and there has been some debate about precisely who they refer to; it is not necessary to enter into this debate and I am merely using them as convenient labels to refer to the two halves of the family and their interests without seeking to identify with any precision who was involved on each side. The general sense is clear enough: on Philip's side the main interest was held by Philip himself; on Gill's side the main interest was held by the executors ( "the Executors") of Michael's estate ( "the Estate") who were Gill, Mr John Barnsley (an accountant and the First Claimant) and Philip, although in the negotiations Mr Barnsley took the lead role in acting for the Estate. The trustees of the family settlements, who at the material time were in almost all cases professional trustee companies in the Capita Group ( "the Capita Trustees"), were interested on both sides in their capacity as trustees of the settlements on Philip's side and Gill's side respectively: the Third and Fourth Claimants are the current trustees of the settlements on Gill's side. Gill did not personally hold any significant interest in Nobles (she had some relatively minor interests) but she was (a) an Executor and trustee of the Estate; (b) the main beneficiary under Michael's will trusts; and (c) naturally concerned with the interests of her children who were beneficiaries of both the will trusts and the settlements on her side.

3

Negotiations for the demerger took place in 2008 and early 2009. It was a very complex transaction, or rather series of transactions. Again there has been some debate as to precisely what is meant by the term "demerger" which I do not need to go into; in simple terms the basic structure was for the parties to transfer their interests into a new company, Indigo Demco Ltd ( "IDL"); this was then put into voluntary liquidation and the underlying interests distributed in specie, in accordance with an agreement made under s. 110 of the Insolvency Act 1986 ( "the s. 110 Agreement"), to its shareholders. These were new holding companies owned respectively by Gill's side and Philip's side. In this way Gill's side ended up owning the property assets and Philip's side the trading companies. On the way to getting to this stage however a very large number of other steps had to be taken, not least due to a desire to minimise the tax payable, and some significant steps took place that dealt with interests entirely outside the s. 110 Agreement, for example the remodelling of certain of the trusts on Philip's side that held interests in the properties so that they became held for Gill's side. PricewaterhouseCoopers ( "PwC"), who were responsible for devising the mechanics of the demerger (on behalf of both sides), produced a plan detailing the various steps which had to be taken ( "the Step Plan") which identified 39 Steps (no doubt, as Mr Tager QC who appeared for the Claimants said, for literary reasons), but many of these had various sub-steps. The demerger was implemented, and the very many documents required to give effect to the Step Plan signed, in the course of 9 and 10 March 2009.

4

After the demerger the parties fell out over a number of matters. One of these has already been litigated; this concerned a building in Piccadilly, Manchester. One of the companies on Gill's side acquired the freehold reversion of the building; one of the companies on Philip's side had a lease of the building and ran a number of amusement arcades on the ground floor. The landlord (on Gill's side) obtained planning permission for redevelopment of the building as, inter alia, a hotel, exercised a break clause in the lease, served a notice under the Landlord and Tenant Act 1954 and brought proceedings under the Act to obtain the termination of the lease. Philip contended that this was contrary to what had been agreed in the demerger negotiations which was to the effect that the tenant (on his side) could stay in at least the ground floor until the end of the term of the lease; and he brought proceedings asserting that the landlord was precluded from exercising the break clause in such a way as to prevent this. The claim was put in various ways including a claim in contract, a claim for rectification of the transfer of the freehold to the landlord, and claims in estoppel and constructive trust. The 1954 Act proceedings and Philip's proceedings were heard together by Morgan J from December 2010 to March 2011. In his judgment handed down on 31 March 2011 he dismissed Philip's claims and found in favour of the landlord: see Crossco No 4 Unlimited v Jolan Ltd [2011] EWHC 803 (Ch). Philip's appeal to the Court of Appeal (which was limited to the estoppel and constructive trust arguments) was dismissed on 21 December 2011: see Crossco No 4 Unlimited v Jolan Ltd [2011] EWCA Civ 1619. I will refer to these proceedings as "the Piccadilly proceedings".

5

The present action concerns another matter which has given rise to a dispute between Gill's side and Philip's side, which can be called the VAT repayment issue. In outline, it was known at the time of the demerger negotiations that some of the trading companies had possible claims for repayment of large sums of VAT from HM Revenue & Customs ( "HMRC") on the grounds that the legislative regime for charging VAT on bingo games and gaming machines infringed the EU principle of fiscal neutrality. These potential repayment claims were therefore contingent assets held by the trading companies.

6

Before Michael's death the two brothers had had equal interests in the organisation. This remained the case after his death, subject to one exception, namely that one of the entities involved was a pension fund (called the Braemar Pension Fund), and on Michael's death his share of the fund was used to provide benefits for Gill and her children, which meant that the remaining assets in the fund were thereafter held for the benefit of Philip and his family. With that exception each side had an equal share in the assets. It was important that the demerger should reflect that, and that (subject to catering for the position of the pension fund) each side should end up with assets of equal value, not only out of fairness to all concerned (which included minor and unborn beneficiaries under the trusts) but also because the demerger might give rise to adverse tax consequences if there were any deliberate value shift from one side to the other.

7

As part of the discussions for the demerger the parties therefore discussed how to deal with the VAT repayment issue. The Claimants say that in the course of those discussions agreement was reached that Philip would pay Gill the equivalent of 25% of the net amount, if any, received, and that when the demerger was implemented this agreement became contractually binding. However this was not formally documented: it was not referred to in the Step Plan, nor in the s. 110 Agreement, nor in any of the very many other documents (some 200) executed to give effect to the Step Plan and complete the demerger on 9 and 10 March 2009. The Defendants say that there was never any binding contractual agreement dealing with the VAT repayment issue.

8

As well as claiming that Philip (who is the only defendant to this action) is liable in contract to pay Gill 25% of the VAT repayments, the Claimants have other complaints. The essence of these is that Mr Barnsley, who represented Gill's side in the negotiations, understood the VAT repayment claims to be worth at best about £26m and to have a remote prospect of success; but it now turns out, say the Claimants, that at the time of the demerger negotiations, the trading companies had made, or...

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