Lonedale Limited And Others V. Scottish Motor Auctions (holdings) Limited
| Jurisdiction | Scotland |
| Judge | Lord Glennie |
| Neutral Citation | [2011] CSOH 04 |
| Date | 14 January 2011 |
| Docket Number | CA89/08 |
| Court | Court of Session |
| Published date | 14 January 2011 |
| OUTER HOUSE, COURT OF SESSION [2011] CSOH 04 | |
| CA89/08 | OPINION OF LORD GLENNIE in the cause LONEDALE LIMITED AND OTHERS Pursuers; against SCOTTISH MOTOR AUCTIONS (HOLDINGS) LIMITED Defenders: ________________ |
Pursuer: Martin, Q.C., MacColl; Tods Murray LLP
Defender: Clark, Q.C.; Harper Macleod LLP
14th January 2011
Introduction
[1] Scottish Motor Auctions Limited ("SMAL"), formerly known as Fife and Kinross Investments Limited, is an auction house for motor vehicles based in Scotland and the North East of England. Until 25 April 2007, its entire issued share capital was owned by the pursuers, 50% by the first pursuer, Lonedale Limited ("Lonedale"), and the remaining 50% by the second and third pursuers as the trustees of certain family trusts. Mr Douglas Flynn, one of the trustees of each trust, was also the owner of 50% of the shares in Lonedale.
[2] In terms of a Share Purchase Agreement ("the SPA") dated 25 April 2007, the pursuers (referred to in the SPA as "the Sellers") agreed to sell their shares in SMAL ("the Company") to the defenders, Scottish Motor Auction (Holdings) Limited ("SMAH") (referred to in the SPA as "the Purchaser"), for a consideration of £15 million. Completion took place on that same day.
[3] SMAH was formed specifically for the purpose of acquiring the shares in SMAL. The interests behind the formation of SMAH were Mark Rijkse, Mark Stewart and Nick Richards, who were directors of Aldington Capital Limited ("ACL"), and Robert ("Bob") Anderson, a business acquaintance of theirs who had had a lifelong involvement in the motor vehicle business. Before approaching ACL, Bob Anderson had already had discussions with Douglas Flynn about the possibilities of acquiring SMAL.
[4] The SPA contained a large number of fairly standard warranties. In terms of clause 5.1, the pursuers warranted that each of the warranties was true, accurate and complete in all respects, and not misleading in any respect. The warranties are set out in Part 6 of the Schedule which runs to some 70 pages. The relevant warranties are as follows:
"1. CORPORATE MATTERS
...
1.8 Memorandum and articles of association
1.8.1 The memorandum and articles of association of each Group Company (copies of which are provided in the Disclosure Documents):
(a) completely and accurately set out all the rights and restrictions attaching to each class of share in the capital of each Group Company;
(b) is true, complete and accurate in all other respects; ...
...
2. CAPACITY
...
2.7 Matters unaffected by execution of this agreement
Neither the execution nor the delivery nor the performance of this Agreement (or any document to be executed in accordance with it) will result in:
...
2.7.3 any party to an agreement or arrangement with a Group Company being relieved of any of its obligations or entitled to terminate any such agreement or arrangement; ...
...
3. CAPITAL
...
3.3 No encumbrance
There is no Encumbrance on, over or relating to any of the Shares or any of the unissued shares, debentures, loan capital or other securities of any Group Company and, other than this Agreement, there is no agreement or arrangement to give or create any such Encumbrance and no person has or has claimed the right to an Encumbrance on, over or relating to any of the Shares or any of the unissued shares, debentures, loan capital or other securities of any Group Company or otherwise has or has claimed the right to call for the issue, and allotment or transfer of any shares, debentures, or other securities in the capital of any Group Company whether exercisable now or in the future and whether or not contingent.
...
4. INFORMATION
4.1 Information in this agreement
The information set out or referred to in Section A (Particulars of the Company) and Section B (Particulars of the Subsidiary/Subsidiaries) of Part 2 of the Schedule is true, complete and accurate and not misleading in any respect.
...
10 CONTRACTS AND COMMITMENTS
10.1 Material contracts
No Group Company is nor has been during the three year period ending on the date of this Agreement a party to, or liable in respect of, and none of the assets owned or used by a Group Company are affected by, any contract, arrangement, commitment or obligation which:
...
10.1.13 may be terminated or varied by another party as a result of a change in the control, management or shareholders of any Group Company; ..."
[5] The defenders claim damages for breach of those warranties. They say, and there is no dispute about this, that the Disclosure Documents did not disclose the then current Articles of Association of a Group Company as defined in the SPA, namely Manheim Scottish Auctions Limited ("MSAL"), formerly Lansman Limited (Lansman"). MSAL was a joint venture company, the shareholding of which was at that time owned as to 50% by SMAL and as to the other 50% by Manheim Auctions Limited ("MAL"). It carried on business from an auction site in Siemens Street, Glasgow. The original Memorandum and Articles of Association of Lansman were dated 31 March 2000. New Articles were adopted on 25 July 2000, when the company was still called Lansman. Those were the Articles current at the date of the SPA. Article 11 was concerned with Compulsory Transfers. Article 11.6 provided, so far as material, as follows:
"In the event that any Member which is a body corporate, directly or indirectly, suffers a change of control that Member shall advise the Company of that fact. Following any such notification or following the Company otherwise becoming aware of that fact, the Company shall serve a notice on that Member requiring it to serve a Sale Notice ... in respect of all the Shares registered in its name, the Offer Price to be specified in that Sale Notice to be the fair value of each Share, the right of the other Members to purchase all of some of those Shares not to be conditional upon all of the Shares being purchased and the Acceptance Period ... to commence on the date on which the Company's auditors delivered to the Company and to each Shareholder of their certificate confirming the fair value of a Share. In the event that no such notice has been served within five (5) days of the Company's request for a notice to be served, such a Sale Notice shall be deemed to have been served. For the purposes of this Article 11.6:
11.6.1 A Member shall suffer a change of control if any person, who was not able to control that Member on the date it first became a Member, acquires the ability, directly or indirectly, to control that Member.
11.6.2 ...
11.6.3 Control shall mean the power of a person to secure by means of the holding of shares or the possession of voting power in or in relation to that or any other body corporate or by virtue of any powers conferred by documents regulating that or any other body corporate that the affairs of the first mentioned body corporate are conducted in accordance with the wishes of that person.
11.6.4 ..."
"The Company" in Article 11.6 is Lansman or, as it became, MSAL. SMAL and MAL were the only Members as at April 2007. There had been no such change of control provision in the previous version of the Articles. On 28 July 2000, Lansman changed its name to Manheim Scottish Auctions Limited (MSAL) and the Memorandum of Association was amended to reflect this change. The Articles were not altered.
[6] The change of control provision in Article 11.6 of the MSAL Articles of Association means that upon the defenders purchasing the entire shareholding of SMAL from the pursuers, SMAL suffered a change of control and could thereafter be required to sell its shares in MSAL to the other shareholders. In the event, soon after the share purchase was completed, a notice was served on SMAL in terms of Article 11.6, triggering the procedures which resulted in a compulsory sale by SMAL to MAL of its shares in MSAL.
[7] It is not disputed that the pursuers were in breach of warranty 3.3. That is already the subject of an admission recorded in an interlocutor. But the pursuers have not admitted breaches of the other warranties relied upon by the defenders. No point was ultimately taken that anything of consequence turned on which, if any, other warranties were breached as a result of the admitted facts. Nonetheless, lest it should matter hereafter, I should deal with the point. Having heard brief argument from Mr Clark QC for the defenders, and no contrary argument from Mr Martin QC for the pursuers, I am satisfied that the same facts which establish a breach of warranty 3.3 also establish a breach of warranties 1.8.1, 2.7.3 and 10.1.13, though not 4.2. Warranty 1.8.1 was breached because the Articles of MSAL which were disclosed were not true, complete and accurate in all respects. Warranty 2.7.3 was breached because the execution and performance of the SPA gave MAL, as a party to the Shareholders' Agreement between the shareholders of MSAL, the right to terminate it in terms of clause 14.1.2 thereof. And warranty 10.1.13 was breached because SMAL, being a Group Company, was party to a contract, arrangement, commitment or obligation (namely the Shareholders' Agreement and the Articles of Association of MSAL) which could be terminated by MAL as a result of the change in the control, management or shareholders of SMAL; and its assets, in particular its shares in MSAL and its interest as landlord in the lease of part of the premises used for the auction business of MSAL, were affected by those contracts.
[8] At the end of April 2009, I heard a Debate on a question relating to the contractual provisions concerning payment and retention. Following my Opinion ([2009] CSOH 64) and sundry procedure, I sustained the defenders' second plea-in-law in the Counterclaim, found the pursuers to be in breach of warranty 3.3 and appointed the remaining issues to a proof before answer. Those issues all arose on the defenders' Counterclaim. For that reason, the defenders led at proof.
[9] At the time I...
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...EWCA Civ 758. See also Eurocopy plc v. Teesdale, [1992] BCLC 1067 and Lonedale Ltd. & Ors v. Scottish Motor Auctions (Holdings) Ltd., [2011] CSOH 04 (Scot. Ct. of Sessions), para. The content of this article is intended to provide a general guide to the subject matter. Specialist advice......