Mary Kathryn Leslie (in her personal capacity and as a trustee of the Mary Lawrence Childrens Settlement) v Robert James Ball

Hearing date: 11 May 2023 (with further submissions on 6 June 2023)

APPROVED JUDGMENT

This judgment was handed down remotely at 10.30 am on 13 July 2013 by circulation to the parties' representatives by email and by release to the National Archives

Mr Peter Knox K.C.

In these proceedings, the Claimants bring a “double derivative” claim, on behalf of the third defendant (Westridge) and the fourth defendant (Arnbrow), against the first two defendants (Robert and Melanie). By order made on 27 May 2022, Adam Johnson J, in the absence of all the Defendants, gave permission for the time being to the Claimants to continue the claim on the companies' behalf. The Claimants now make a further application, as envisaged by that order, for an order that they be indemnified, in the terms discussed below, by Arnbrow or Westridge both in respect of the costs which they have incurred and shall incur in pursuing the claim on their behalf, and also in respect of any adverse costs order that might be made against them at the end of proceedings. Neither Arnbrow nor Westridge (nor Robert or Melanie) have sought to resist the continuation of Adam Johnson J's grant of permission, as they could have done, but they resist the application for an indemnity.

The first claimant (Mary) and Robert are brother and sister. Melanie is the widow of another brother, who was called Norman, who died in April 2019, and she was the executrix of his estate and inherited his shares in Westridge. Mary, Robert and Norman were the children of Norman Ball (senior), to whom I shall refer as “Father”. Mr David Rule, the second claimant, is a co-trustee with Mary of a trust set up in 1987 for the benefit of some of her children. The trustees have altered over the years, Mr Rule having been appointed only in September 2019, but Mary has always been one of them. For convenience I shall refer to this as “the Trust”.

The matter has come about as follows.

The Claimants claim that in 2008, Robert and Norman in breach of fiduciary duty caused Arnbrow to transfer, for no value or at an undervalue, three parcels of land in the Isle of Wight, which had amongst other things holiday houses built on them, to companies which the two of them owned; and that thereafter they profited from further wrongful dealings with those three parcels and their proceeds. At the time, Arnbrow was owned by a company which, for convenience, has been called “Bullen Estates” in the hearing before me, but since 2015 it has been owned by Westridge, which in all material respects is Bullen Estates' successor company.

The Trust, Robert and Norman each owned almost one third of the relevant shares in Bullen Estates at the time of the alleged wrongful transfers, a small balance being owned by Father. As a result of a subsequent divestment by Father, the transfer of the business to Westridge, and Norman's death, the position is now that the Mary and the Trust (together), Robert and Melanie own the shares in Westridge equally. The Claimants accordingly claim that Robert and Melanie (as executrix or in her personal capacity) hold the traceable proceeds of Robert and Norman's breaches on trust for Arnbrow, and they also claim from them an account, equitable compensation and related relief.

Simultaneously, the Claimants are bringing an unfair prejudice petition against Robert and Melanie (both as executrix and as shareholder in Westridge, having inherited from Norman). This was issued at the same time as the derivative claim, and it includes, amongst its allegations of unfairly prejudicial conduct, an allegation that in breach of fiduciary duty to Bullen Estates and latterly to Westridge they failed to cause Arnbrow (as the wholly owned subsidiary) to take steps to reverse the wrongful 2008 transfers and subsequent dealings, so as to restore Arnbrow to the position it should have been in had the alleged breaches not been committed. The petition also claims an order that Robert and Melanie buy out the Claimants' shares in Westridge at a fair value, without a minority discount, with a premium to reflect the loss suffered by Westridge as a result of the unfairly prejudicial conduct, including the failure to take steps to restore Arnbrow to the position it should have been in.

The Claimants' position can be summarised as follows. First, given that the grant of permission to bring the claim still exists and has not been resisted or revoked, I must proceed on the basis that they have been and remain properly authorised by the Court to bring the derivative claim on behalf of Arnbrow and Westridge, and that it is not open to the Defendants now to go behind this. Second, the usual rule, absent exceptional circumstances which do not apply here, is that where minority shareholders have been authorised by the Court to bring a derivative claim on a company's behalf, the Court should also order, pre-emptively, an indemnity both in respect of the costs which they have incurred and will incur, and also in respect of any costs order that may be made against them, at least up to an identifiable stage in the proceedings when the point can be reviewed. Here, they seek an indemnity only up to the completion of inspection after disclosure, when they accept the matter should be reviewed. Third, they say that it is possible to identify which costs are referable solely to the derivative claim (for which they claim a full indemnity), which are common to both claims (for which they claim an indemnity at 50%), and which are referable only to the petition (for which, of course, they claim no indemnity).

The Defendants reply, first, that notwithstanding Adam Johnson J's order, it is open to me to find that it is unnecessary for the Claimants to bring the derivative claim, because they could have brought all the claims within the unfair prejudice petition. They also say that a lot of new evidence has come to light since the order, so I should give it little weight. Therefore, for these reasons alone, I should refuse the pre-emptive indemnity. Second, they say that in any event all the allegations of breach of fiduciary duty, and the question of the extent to which funds should be restored to Arnbrow, fall to be decided in the unfair prejudice petition as well as in the derivative claim. Therefore, the costs which the Claimants incur in making these allegations, and the risk of an adverse costs order if they lose, are all costs or a risk which they are incurring for their own direct benefit. Further, on the facts, the court cannot be satisfied to “a high degree of assurance” that after trial the court will order Westridge to indemnify the Claimants. So for both these reasons, the usual rule, if such it is, does not apply, and Arnbrow should not be required to give a pre-emptive indemnity: indeed it would produce manifest unfairness to apply it in such circumstances. Third, they say that all the past or future costs on either side on the derivative claim are also referable to the unfair prejudice petition which is pursued for the Claimants' sole benefit. So there should be no indemnity in respect of any part of the derivative claim costs.

Accordingly, there are three main issues:

(1) Is it open to me to reject the indemnity application simply on the footing the derivative claim is insufficiently supported by the facts, or unnecessary?

(2) Does the usual rule, that a company should provide a pre-emptive costs indemnity when claimants bring a derivative claim with the court's authority for the company's benefit, also apply to this case, where, as said, the claimants bring a simultaneous unfair prejudice petition which seeks to prove, in whole or at least in part, the same allegations as are made in the derivative claim for their own personal benefit? And anyway, does it apply only where the court is satisfied to a high degree of assurance that an indemnity after trial would be appropriate, and if so, what is the consequence in this case?

(3) Is the overlap in issues between the derivative claim and the unfair prejudice petition such that, in substance, all the costs incurred on the former have also been and will also be incurred on the latter? Or are there some costs which can properly be treated as referable only to the former, and therefore susceptible in principle to a pre-emptive indemnity?

Before turning to these issues, I first summarise the background (which I take largely from the parties' statements of case), and then consider how the statements of case put the various claims and defences.

The background

After the second world war, according to Robert, Father established a construction business with his brother...