Lonrho Plc v Al-Fayed and Others
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE DILLON,LORD JUSTICE RALPH GIBSON,LORD JUSTICE WOOLF |
| Judgment Date | 02 March 1989 |
| Judgment citation (vLex) | [1989] EWCA Civ J0302-3 |
| Docket Number | 89/0234 |
| Court | Court of Appeal (Civil Division) |
| Date | 02 March 1989 |
Lord Justice Dillon
Lord Justice Ralph Gibson
and
Lord Justice Woolf
89/0234
1987 L. No. 698
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR. JUSTICE PILL)
Royal Courts of Justice.
MR. JOHN BEVERIDGE, Q.C. and MR. E. BANNISTER (instructed by Messrs. Stephenson Harwood) appeared on behalf of the (Plaintiffs) Appellants.
MR. DAVID OLIVER, Q.C. and MR. ALASTAIR WALTON (instructed by Messrs. Herbert Smith) appeared on behalf of the (First, Second, Third and Fourth Defendants) Respondents.
MR. ANTHONY GRABINER, Q.C. and MR. NICHOLAS BRATZA (instructed by Messrs. Slaughter & May) appeared on behalf of the (Fifth and Sixth Defendants) Respondents.
This is an appeal by the plaintiff in the action, Lonrho plc, against an order of Mr. Justice Pill made on the 22nd June, 1988 whereby he struck out the statement of claim as disclosing no cause of action, and he dismissed the action with costs as against all six defendants. Any striking out case is dealt with on the footing that the allegations of fact in the statement of claim are true, but the general background in the present case is not in dispute.
Lonrho by 1979 had acquired some 29.9 per cent of the share capital of House of Fraser plc, a company which owned various department stores including Harrods. Lonrho desired to acquire control of the whole share capital of House of Fraser, but there were various successive references to the Monopolies Commission as to the merger situation which would be involved if Lonrho did acquire the share capital of House of Fraser, and, at the request of the Secretary of State, Lonrho gave an undertaking not to acquire shares in House of Fraser which would take its holding up to 30 per cent or more. That was given on the 15th December, 1981. A third and so far final reference to the Monopolies Commission in relation to Lonrho and House of Fraser was made on the 31st May, 1984. On the 30th October, 1984 the Secretary of State extended the time for the Monopolies Commission to report to the 28th February, 1985. No further extension was possible beyond that, and it was accordingly obvious that, if the report was favourable to Lonrho's acquisition of control of House of Fraser, the undertaking would be likely to be released, but equally obvious that the undertaking would not be likely to be released until the Monopolies Commission's report had been received.
The first three defendants in this action, the Fayeds, are brothers said to hail from Egypt. The fourth defendant, House of Fraser Holdings plc, is a company acquired ad hoc by the Fayeds to acquire for them the share capital of House of Fraser. It is alleged in the statement of claim that from at latest November 1984 the Fayeds intended and planned to acquire through the medium of Holdings all the issued share capital of House of Fraser.
On the 2nd November, 1984 Lonrho sold to Holdings all but 1,200 shares of its 29.9 per cent holding in House of Fraser, but shortly afterwards Lonrho acquired shares bringing its holding up to 6 per cent.
On the 3rd March, 1985 Holdings, on behalf of the Fayeds, made a cash offer for the issued share capital of House of Fraser. The sixth defendants, Kleinworts, a well known merchant banker in the City of London, acted as merchant bank and adviser of the Fayeds and Holdings in relation to that offer. The fifth defendant, Mr. John Macarthur, was a director of Kleinworts who acted in the matter.
On the 4th March, 1985 the offer by Holdings was announced publicly after the directors of House of Fraser had agreed to recommend it. On the 7th March, 1985 the report of the Monopolies and Mergers Commission in relation to the Lonrho reference was published. It gave clearance for Lonrho's acquisition of the share capital of House of Fraser, but for the moment the undertaking to the Secretary of State against acquiring further shares was not released. By the 11th March, 1985 Holdings had acquired more than 50 per cent of the issued share capital of House of Fraser. This was achieved by purchase from Lonrho, the 29 per cent purchased on the 2nd November, 1984, and by purchases in the market which were not conditional, including purchases of Lonrho's 6 per cent.
On the 14th March, 1985 the Secretary of State released Lonrho from the 1981 undertaking. On the same day the Secretary of State announced that the bid by Holdings for the share capital of House of Fraser would not be referred to the Monopolies and Mergers Commission. The bid therefore went ahead, and Holdings acquired 100 per cent of the share capital of House of Fraser.
I pass now to matters of fact alleged in the statement of claim which are strongly disputed. It is fair to all the defendants to emphasise that they are very strongly disputed. It is said by Lonrho in the statement of claim that the Secretary of State's decision not to refer the bid by Holdings to the Monopolies and Mergers Commission was procured by fraud on the part of the Fayeds and Holdings and on the part of Kleinworts and Mr. Macarthur on their behalf.
The nature of the fraud by the Fayeds and Holdings is said to have been a complete misrepresentation of the commercial standing and worth of the Fayeds, including representations contrary to the fact that the Fayeds had money from their own resources to pay for the share capital of the House of Fraser. It is not said that the nature of the representations was to run down Lonrho, but to puff up the position of the Fayeds so that there would be no reference to the Monopolies and Mergers Commission of the bid by Holdings or, indeed, of any bid by Holdings and the Fayeds. It is said that, if the truth had been disclosed, there would probably have been a reference to the Monopolies and Mergers Commission and the outcome would probably have been that the Fayeds would have been barred from acquiring control of the House of Fraser and would have been required to divest themselves of the 50 per cent plus interest which they had acquired.
If Lonrho is right on the facts pleaded, it is obvious that there was deliberate fraud on the Secretary of State at least on the part of the Fayeds. In justice to Kleinworts and Mr. Macarthur it is not said that they knew that the facts told them by their clients, which they relayed to the Secretary of State, to the directors of the House of Fraser, and by press announcements to the general public, were false. It is said that they had a duty to satisfy themselves as to the truth of what their clients told them, that they failed to do so, and that it is to be inferred accordingly that they acted recklessly, careless whether what they said was true or false, and therefore that they acted in that sense fraudulently. Accordingly, at a trial of the action the position of Kleinworts and Mr. Macarthur in relation to the allegations of fraud may be very different from the position of the Fayeds and Holdings. But that is not a difference which is relevant on the present application. No distinction has been taken on the hearing of this appeal in relation to the alleged cause of action with which we are concerned between the position of Kleinworts and Mr. Macarthur and the position of the Fayeds and Holdings.
Lonrho issued a writ claiming damages. The statement of claim is lengthy and contains detailed allegations of alleged fact in over 50 paragraphs. All the defendants applied to strike out the statement of claim in toto. Mr. Justice Pill had to deal with three alleged causes of action in the statement of claim. In this court we have only had to deal with one.
So far as the other two are concerned, the position is as follows. First, there was an allegation against Kleinworts alone of the tort of negligence. It was said that they acted negligently in breach of a duty of care which they were said to have owed to Lonrho. That was struck out by the judge with the rest of the statement of claim, but his decision on that cause of action is not challenged and the notice of appeal did not seek to restore that alleged cause of action. Secondly, there was an allegation in the statement of claim against all the defendants of the tort of conspiracy. That also was struck out by the judge, and Mr. Beveridge accepts that the judge's decision on that cannot be challenged in this court in the light of the decision of the House of Lords in Lonrho v. Shell Petroleum [1982] A.C. 173 as interpreted by this court in Metall und Rohstoff A.G. v. Donaldson Lufkin & Jenrette Inc., decided on the 27th January, 1989 and as yet unreported. The point here is that for the tort of conspiracy to lie, the predominant purpose of the conspirators must have been to injure the plaintiff rather than to further their own commercial interests. Here the predominant purpose was to further the Fayeds' own commerical inter by acquiring the share capital of House of Fraser. However, Mr. Beveridge seeks to keep open the possible resuscitation of the allegation of conspiracy should this application reach the House of Lords and the decision of this court in Metall und Rohstoff, which binds us, become susceptible of review.
Because those two causes of action are not pursued in this court, we approach this appeal on the basis that paragraphs 42 to 47 (both inclusive) and 55 and 56 of the statement of claim and the words "and/or conspiracy and/or breach of duty" in paragraph 57 stay struck out.
The third cause of...
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