Joseph Cyril Edward Bamford (suing on behalf of himself and all other shareholders in the Second Defendant other than the First Defendant) (Claimant v John Henry Harvey and Another

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Roth
Judgment Date18 Oct 2012
Neutral Citation[2012] EWHC 2858 (Ch)
Docket NumberCase No: HC12B02383

[2012] EWHC 2858 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Mr Justice Roth

Case No: HC12B02383

Between:
Joseph Cyril Edward Bamford (suing on behalf of himself and all other shareholders in the Second Defendant other than the First Defendant)
Claimant(1)
and
(1) John Henry Harvey
(2) Avro Heritage Limited
Defendants

Daniel Lightman (instructed by DWF LLP) for the Claimant

David Casement QC (instructed by Nexus Solicitors Ltd) for the First Defendant

Hearing Date: 25July2012

Approved Judgment

Mr Justice Roth Mr Justice Roth

Introduction

1

This is an application for permission to bring derivative proceedings in the name of Avro Heritage Ltd ("the Company") under Part 11 of the Companies Act 20061. Mr Joseph (Jo) Bamford and Mr J H (Harry) Harvey are the sole directors of, and each is a 50% shareholder in, the Company. Mr Bamford is the claimant and Mr Harvey is the only substantive defendant, although in the usual way the Company has been joined as second defendant.

2

Statutory derivative claims are governed by the provisions in ss. 260–264 (and ss. 265–269 in Scotland). Those provisions establish a two-stage procedure for obtaining permission to bring such a claim. The first stage, as set out in s. 261(2), is essentially an ex parte procedure, although by CPR r. 19.9A(4) copies of the application notice, with the claim form and evidence relied on for the permission application, must be sent to the Company. By order of 19 June 2012, Vos J allowed the claim to proceed to the second stage. Accordingly, he found that the application and evidence in support disclosed a prima facie case: see s. 261(2)(a). This is the second stage of the permission application, determined after Mr Harvey has served his evidence and a hearing at which both sides were represented.

The statutory provisions

3

Section 263 sets out the approach to be applied in determining the grant or refusal of permission. Sub-sections 263(2)-(4) provide:

"(2) Permission… must be refused if the court is satisfied-

(a) that a person acting in accordance with section 172 (duty to promote the success of the company) would not seek to continue the claim, or

(b) where the cause of action arises from an act or omission that is yet to occur, that the act or omission has been authorised by the company, or

(c) where the cause of action arises from an act or omission that has already occurred, that the act or omission-

(i) was authorised by the company before it occurred, or

(ii) has been ratified by the company since it occurred.

(3) In considering whether to give permission … the court must take into account, in particular-

(a) whether the member is acting in good faith in seeking to continue the claim;

(b) the importance that a person acting in accordance with section 172 (duty to promote the success of the company) would attach to continuing it;

(c) where the cause of action results from an act or omission that is yet to occur, whether the act or omission could be, and in the circumstances would be likely to be-

(i) authorised by the company before it occurs, or

(ii) ratified by the company after it occurs;

(d) where the cause of action arises from an act or omission that has already occurred, whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company;

(e) whether the company has decided not to pursue the claim;

(f) whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in his own right rather than on behalf of the company…

(4) In considering whether to give permission the court shall have particular regard to any evidence before it as to the views of members of the company who have no personal interest, direct or indirect, in the matter."

4

Section 268 sets out equivalent provisions as regards the granting of leave to raise derivative proceedings in Scotland.

5

Accordingly, there are three grounds specified in the statute on any of which permission must be refused: s. 263(2). If they do not apply then, in considering whether to give permission, there are set out six factors which the court "must take into account": s. 263(3). In addition, the court must have "particular regard" to the additional matter set out in s. 263(4). However, the s. 263(4) consideration has no application in the present case since there are no members of the Company who have no personal interest in the matter.

The nature of the dispute

6

Unusually, in this case the strenuous objection to this action proceeding by way of derivative claim is not based on any of the grounds in s. 263( 2) or (3). Instead, for Mr Harvey it was submitted that the bringing of a derivative claim against him is inappropriate as a matter of principle since there is a mechanism whereby Mr Bamford could procure that the Company brings ordinary proceedings against him. While Mr Harvey contends that he would have a good defence to such proceedings (although the basis of that defence was not explained), on his behalf it was argued by Mr Casement QC that permission to bring the particular form of proceedings by way of derivative claim should be refused and that the claim can be reconstituted as an ordinary action in the name of the Company. However, it was submitted that Mr Bamford should pay all the costs incurred to date by reason of his mistaken commencement of a derivative action.

7

Although Mr Casement submits that an important principle is here involved as to when derivative proceedings can be employed, in reality I consider that the dispute in that regard between the parties has been driven by tactical manoeuvring seeking to impose a cost burden by the one upon the other.

The facts

8

The underlying facts giving rise to the claim against Mr Harvey are relatively simple. The Company was incorporated on 6 September 2010 for the express purpose of purchasing a site at Woodford Aerodrome in Cheshire ("the Woodford Site") from BAE Systems for the purpose of redevelopment. In December 2011, the Company entered into a contract to purchase the Woodford Site from BAE for a total price of £40.35 million plus VAT ("the Woodford transaction").

9

Under the contract, the price was payable in stages: a deposit and the first stage payment, amounting together to £20 million (plus VAT), were duly paid by the Company in December 2011. Thereafter, £3.5 million (being the VAT on the relevant part of the second stage payment) was payable by 27 January 2012; and the second stage payment itself of £20.35 million is payable by 15 November 2012, although there is provision for possible postponement to 31 December 2012.

10

Mr Bamford is a party to the Woodford transaction as personal guarantor of the Company's obligations to pay the £3.5 million and the second stage payment of £20.35 million.

11

On the same date as the Woodford transaction, the Company entered into an agreement with Redrow Homes Ltd ("Redrow") and Harrow and Estates plc ("the Redrow Agreement") to sell 80 acres of the Woodford Site to Redrow for the total price of £41 million (plus VAT). That price was also payable by instalments: £21 million (plus VAT) was due on completion; £4 million (being VAT on the second stage payment) was payable by 3 January 2012; and the second stage payment of £20 million by 31 December 2012. From the particulars of claim served by Mr Bamford, it appears that Redrow has duly paid the instalment due on completion and further, on about 2 January 2012, the sum of £4 million.

12

Mr Bamford alleges that in late January 2012, following a meeting which Mr Harvey had with representatives of BAE and discussions on the possibility of the Company becoming involved in a larger deal involving other BAE sites, Mr Harvey told him that BAE had agreed to defer the Company's obligation to pay the £3.5 million VAT to the end of February 20Then, on about 23 February 2012, following another meeting with BAE's representative, Mr Harvey told Mr Bamford that BAE had agreed to a further deferral of the obligation to pay the £3.5 million until 30 December 2012.

13

In telephone conversations over the next few days, Mr Harvey told Mr Bamford that he was in financial difficulties in completing the purchase of the property where his family lived and asked if the Company could lend him £3.5 million on a short term basis, which he would repay at least one month before the Company was obliged to pay that sum to BAE. Mr Bamford says that in reliance on Mr Harvey's representations about what BAE had agreed, he agreed to that loan and, because of the urgency, that the money could be advanced prior to the execution of loan documents. There is no dispute, as I understand it, that the sum of £3.5 million was then transferred to Mr Harvey on about 28 February 2012. Further, by e-mail on 21 March, the Company's solicitor sent draft loan documents covering the loan to Mr Bamford and Mr Harvey.

14

Subsequently, on about 4 April 2012, Mr Bamford became aware that BAE had not in fact agreed to the deferral of the £3.5 million payment to 30 December 2012 but remained entitled to call on the Company to make that payment at any time. Further, in two separate e-mails sent on 4 April 2012, Mr Harvey stated that he would repay the £3.5 million loan by 31 May. However, he still had not signed the loan documents and Mr Bamford had by this stage become very concerned. He set out his concerns in a long e-mail of 3 May, noting that there was accordingly a very substantial unsecured loan to Mr Harvey with no document to support it. Since the £3.5 million could be demanded by BAE at any time, in...

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