Lindgren v L. & P. Estates Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE HARMAN,LORD JUSTICE WINN
Judgment Date05 December 1967
Judgment citation (vLex)[1967] EWCA Civ J1205-3
Date05 December 1967

[1967] EWCA Civ J1205-3

In The Supreme Court of Judicature

The Court of Appeal

(Civil Division)

(From: Mr. Justice Plowman)

Before:

Lord Justice Harman

Lord Justice Danckwerts and

Lord Justice Winn

Frederick William Lindgren William Edward Emms and Isidore Kerman
and
L. & P. Estates Limited

Mr. JOHN ARNOLD, Q.C, Mr. MORRIS FINER, Q.C. and Mr. RALPH INSTONE (instructed by Messrs. Titmuss Sainer & Webb) appeared on behalf of the Appellants (Defendants).

Mr. MICHAEL ALBERY, Q.C. and Mr. A.C. SPARROW, Q.C. (instructed by Messrs. Simmons & Simmons) appeared on behalf of the Respondents (Plaintiffs).

LORD JUSTICE HARMAN
1

This is an appeal from a decree of Mr. Justice Plowman in favour of the plaintiffs in a specific performance action in which the plaintiffs' claim was for specific performance of an agreement for a lease of a group of properties belonging to the defendant company. The plaintiffs are trustees of a settlement made in 1946 by Ephraim Cotton, who died in 1959. The original trustees were Ephraim Cotton and the plaintiffs Lindgren and Emms, and the plaintiff Kerman was appointed trustee in Cotton's place in 1962. The income beneficiaries are four grandchildren of the settlor all at all material times of age. The agreement was made on the 20th March, 1959, and possession of the subject-matter was handed over immediately to the plaintiffs and the agreement has been operative ever since. The only reason why the matter was not completed in 1959 by deed was the avoidance of stamp duty. The facts are fully stated in the judgment below and I do not repeat them further than necessary to make what follows, I hope, intelligible.

2

The agreement on the face of it is perfectly regular and in particular contained a special provision entitling the plaintiffs to give notice at any time to the defendants requiring the grant of the lease of any one or more of the properties comprised in it. This notice has been given and on the face of it there is no defence to the action, which is however defended and that on two grounds: first that the written document did not in fact contain the whole of the agreement between the parties, but that there was an extra term not reduced to writing entitling the defendants at any time to put an end to the lease as regards any or all properties comprised in it. This defence, apart from involving a fraud on the Revenue, would have made nonsense of the agreement and the judge rejected it and there has been no appeal in that respect. There remains, however, a plea expressed as follows — "The agreement is void and of no effect". What the Pleader meant by this I have never understood. It is quite clear the agreement was not void and it has been acted on for years.The case was argued upon the footing that the words meant "is voidable and has been repudiated", and this for reasons which require some recital of the circumstances.

3

In the year 1959 the whole of the share capital of the defendant company was owned by a Lady Price. It was a holding company being the owner of various freehold and leasehold properties which roughly fell into two groups, Group 1 being properties recently let at rack rents which showed a good return on the value and Group 2 being properties let not so recently and of which rents were below the 1958 level and showed a poor return on the value. As and when these latter leases should fall in, between 1968 and 1985, rents could probably be put up and the income from the properties very much increased.

4

Lady Price was in 1956 desirous of realising her property interests, and her advisers, notably a Mr. Goldsbrough, an accountant, who was a director of the defendant company, and a Mr. Orchard-Lisle, a surveyor, the other director, both of whom were well versed in the property world, approached a company called City Centre Properties Limited (C.C.P.), a public company engaged in property development, and offered the properties to that company. So far as Group 1 properties were concerned this was an attractive proposition as it would provide good dividends for C.C.P. shareholders. The Group 2 properties, however, would show a very low yield and were not suitable for the portfolio of a public company.

5

The mainspring of C.C.P. was the late Mr. Jack Cotton, a son or nephew of Ephraim Cotton and father of the beneficiaries under the settlement, and either he or his friend the plaintiff Lindgren, who was also a director of C.C.P., were desirous of acquiring the former group of properties without the latter and found a purchaser of the latter in the trustees of the 1946 settlement. The Group 2 properties were thought to be a suitable investment for the trustees because their beneficiaries, the four children of Mr. Jack Cotton, were all large surtax payers who wanted capital rather than income profits. Moreover,if a long lease, that is to say over 50 years, were granted, the lessees could deduct tax when paying the rent and could use for that purpose dividends payable by C.C.P. in which the trustees were the largest single shareholders. It was therefore proposed that C.C.P. should buy the Group 1 properties and the trustees the Group 2, but objections were raised to this of a fiscal nature and the plan was changed to a sale to C.C.P. of the entire share capital of the defendant company. There was a valuation at arm's-length of the defendant company's properties for this purpose and the purchase price was settled at about £1,750,000, of which the Group 2 properties represented about £750,000. The arrangement then made was that the whole transaction should go forward as one, but that the defendant company should by arrangement with C.C.P. grant a lease to the trustees of the Group 2 properties immediately before the sale of its shares to C.C.P. It remained to fix a rent, and it is perhaps enough to say that for this purpose there was no further valuation, but the value of the Group 2 properties was taken as £1,000,000, that is to say considerably more than the value agreed for the share transaction, and the rent was eventually worked out at £82,000 odd a year for the ten freehold properties in the group and £29,000 for a leasehold in Piccadilly. This would look well in the defendant company's portfolio and enable a satisfactory dividend to be paid to C.C.P., but it would result in a loss to the trustees in the earlier years of about £40,000 a year, that being the excess of the rent over the existing rents from the properties. The agreement, as I say, was signed on the 18th March, 1959. All went smoothly until the year 1963, when there was some revolution in the Cotton empire with the result that Mr. Jack Cotton ceased to be chairman of C.C.P. and the trustees disposed of their interest in that company, which is now under different management. Mr. Cotton then suggested to the trustees that they should seek the completion of the agreement for a lease; this was refused, hence this action.

6

This defence, so far as I understand it, is to the effectthat the agreement for the lease was procured by Cotton and Lindgren, both of whom had interests in conflict with their duties as directors of C.C.P., Cotton because his children were interested under the settlement and Lindgren because he was a trustee of it, that this was not the decision of C.C.P. but of Lindgren and Cotton in breach of their duty to that company. It was further said that the directors of the defendant company acted in breach of their duty to it under pressure from Cotton and Lindgren and without considering at all whether the bargain was a good one from the point of view of the defendant company. Further, and this was the crux of the defence, that Lindgren knew of this breach of duty. I see no evidence that if there was thus a breach of Lindgren's and Cotton's duty to C.C.P. the directors of the defendant company knew that this was not the decision of the C.C.P. board. Indeed both the defendant directors were not unfamiliar with the way in which C.C.P.'s affairs were conducted and had reason to suppose that the rest of chat board did or would concur.

7

I altogether reject both these propositions which I have stated. In the first place the Defence and Counterclaim contains no allegation of breach of duty by either Goldsbrough or Orchard-Lisle, the two directors of the defendant company, and I cannot think that on the pleadings as they stand this point is open. I do not, however, base my decision on this. I do not think that there was evidence to justify the finding of a breach of duty by the defendants' directors. The learned judge did so find in that he said that Goldsbrough and Orchard-Lisle merely "rubber-stamped" the decision made by Cotton and Lindgren. In my opinion the evidence does not justify this finding. Orchard-Lisle was not called at all, and it is clear enough that Goldsbrough gave a lot of consideration to the subject. The only statement by him that was relied on was that he was "a nominee for C.C.P." what he meant by this I do not know. Possibly that he was looking rather to the interests of C.C.P. than those of the defendant company, but that seems quite irrelevant.

8

It is true that Cotton and Lindgren suggested the agreement to the directors of the defendants. In my judgment they did this in what they thought were the interests of C.C.P. which was about to become the holder of all the shares in the defendant, company. It is clear enough that for C.C.P. it was essential if the deal was to go through to find someone to take over the Group 2 properties, and I am of opinion that Cotton and Lindgren, at any rate, thought the bargain an excellent one both for C.C.P. and the defendant company. After all, it is not easy to find a lessee who will for ten years or so face a loss of about £40,000 a year. There is moreover no evidence that Lindgren knew, even if it were the fact, that Goldsbrough and Orchard-Lisle were not exercising an independent...

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