Nugent and Another v Benfield Greig Group Plf and Others

JurisdictionEngland & Wales
JudgeLORD JUSTICE ALDOUS,LORD JUSTICE MUMMERY,LORD JUSTICE KAY
Judgment Date14 March 2001
Neutral Citation[2001] EWCA Civ 397
CourtCourt of Appeal (Civil Division)
Docket NumberA3/2001/6044 A3/2000/0432
Date14 March 2001

[2001] EWCA Civ 397

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

(Mrs Justice Arden)

Royal Courts of Justice

Strand

London WC2

Before:

Lord Justice Aldous

Lord Justice Mummery

Lord Justice Kay

A3/2001/6044

A3/2000/6454

A3/2000/0432

(1) Margaret Rose Nugent
(2) Mark John Killick
Petitioners/Appellants
and
(1) Benfield Greig Group Plc
(2) Grahame David Chilton
(3) David John Coldman
(4) Dieter Ronald Losse
(5) David Hutchinson Spiller
(6) John Lindsay Pearce Whiter
(7) Raymond John Carless
(8) Neil David Eckert
(9) Joseph Mcgrane
(10) Hugh Stephen Kenneth Peppiatt
(11) Michael John Rees
(12) Abacus Corporate Trustee Limited)
Respondents

MR L COHEN QC and MR F TREGEAR (Instructed by Gouldens, London EC4Y 0JJ) appeared on behalf of the Appellants

MR D RICHARDS QC and MR D CHIVERS (Instructed by Ashurst Morris Crisp, London EC2A 2HA) appeared on behalf of the Respondents

LORD JUSTICE ALDOUS
1

By order dated 1st March 2000 Arden J gave summary judgment in favour of the respondents to a petition presented under section 459 of the Companies Act 1985. With leave of this court the petitioners appealed. They also seek leave to adduce further evidence on the appeal and to re-re-amend their petition.

2

The petitioners are the executors of the late Mr Harding who was killed in a helicopter crash on 22nd October 1996. He was a director of Benfield Greig Group Plc, the first respondent. The 2nd-11th respondents are the present directors of Benfield and the twelfth respondent is the trustee of an employees' trust. I will refer to the trust as the "Jersey Trust" and unless there is need to differentiate between the other respondents, I will refer to them generally as the respondents.

3

Mr Harding was one of four founder members of the company which has grown into Benfield. The Group is substantial with a main activity of reinsurance brokers. He and the other three original founder members signed a statement of common belief in July 1992 which affirmed that there should not be a separation of share ownership from the management, and that accordingly the directors should offer to sell their shares on leaving the company to interests within the company. That was incorporated into the Articles of Association.

4

At the date of his death Mr Harding held 16 million ordinary shares which conferred about 30 per cent of the voting rights at general meetings of the company. In 1997 Benfield acquired a Greig Fester Group Ltd and in consequence the proportion of voting rights conferred by his holding was reduced to 24.9 per cent.

5

Article 13(a) of Benfield precluded a transfer of shares without the shares first being offered round in the manner provided for in the Articles. The detail of the offer-round procedure is not important to this appeal, but in general it required a transfer notice. Such a notice was deemed to have been served upon death. That notice was said by Article 13(i) to "constitute the company his agent to offer for sale the shares in question in accordance with the succeeding provision of, and, if a sale is concluded, to implement the sale in accordance with its terms". It follows that on the death of Mr Harding, a transfer notice in respect of his shares was deemed to have been given and Benfield became the petitioners' agent to the offer for sale and the subsequent sale.

6

The compulsory transfer of the Harding shares was not implemented in 1997 because of the acquisition of Greig Fester.

7

During November and December 1996 and throughout 1997 and 1998 the petitioners had frequent and cordial meetings with the directors of Benfield. As a result they came to trust the directors and relied on them to act in the best interests of Benfield and themselves as executors. It was against that background that the compulsory transfer was not implemented in May 1998, but was implemented in May 1999.

8

The price to be paid for the shares offered in a transfer round had to be determined in accordance with Article 13 of the Articles of Association. That Article required the directors to take action in advance of any transfer period. Thus Article 13(i) provides:

"In advance of any Transfer Period, the Directors will appoint the Auditors (or at their discretion, another appropriately qualified external and independent valuer) to give a view on the market value of any shares which are the subject of a transfer notice served in respect of such Transfer Period."

9

Article 13(j) stated:

"The valuer shall take into account the information available in respect of the most recent audit, together with any additional information that is then available. The valuer shall be requested to perform the valuation promptly and in any event within a period specified by the Company in the terms of appointment. In performing the valuation and for the purposes of these Articles, the valuer will act as an expert and not as an arbitrator."

10

The valuer's remuneration was to be calculated on the basis to be determined by Benfield and paid by Benfield to the extent permitted by law and otherwise by the transferor.

11

The Harding shares were placed in the 1999 transfer round with the result that sale at the market value price became compulsory. The valuation was carried out by PricewaterhouseCoopers who had been appointed auditors to the company in the autumn of 1998. On 4th May 1999 they gave their valuation which valued each share at £2.10. The petitioners were told on 11th May that the Harding shares were to be included in the 1999 offer round at the price determined by Pricewaterhouse. 7,600,000 shares were to be sold to the Jersey Trust and the rest would be acquired by Benfield. The finance to pay for the shares acquired by the Jersey Trust was to be provided by Benfield.

12

The petitioners had anticipated a price of at least £4.00, being the minimum price that had been paid in two placements of shares that had taken place in 1987. They therefore sought advice from Deloitte & Touche. They provided a preliminary valuation on 26th May 1999. It indicated a minimum value of £4.00 per share based mainly on the two placements of Benfield shares to seven outside investors at £4.17 and £4.00 per share. That valuation was based on published information and was qualified. It prompted the petitioners to present the petition on 2nd June 1999. Deloitte & Touche confirmed their preliminary view on 15th and 25th June in the light of further information that had been provided.

13

Benfield proceeded with the Extraordinary General Meeting that had been arranged, but gave an undertaking not to implement any resolution passed. On 25th June 1999 the petitioners applied for an interim injunction restraining transfer of the shares. It was dismissed by Pumfrey J upon Benfield undertaking not to transfer, dispose of or deal with 10 shares. They were to be retained by the petitioners to ensure that they had locus. Following dismissal of the application for interim relief all the shares, save for the 10, were transferred as I have indicated.

14

On 20th July 1999 the petitioners issued proceedings against Pricewaterhouse for negligence. On 1st September 1999 the respondents issued an application under CPR Part 24 to dismiss the petition and obtain summary judgment. That application came before Arden J between 18th and 20th January 2000. She handed down her judgment on 26th January 2000 and ordered that there be summary judgment dismissing the petition.

15

In the petition the petitioners had alleged that they had been unfairly prejudiced because they had a reasonable and legitimate explanation, gained from meetings between them and the directors of Benfield, that there would be no forced sale of the shareholding and that they would participate in the process for determination of the sale price or any consensual sale of the shareholding that might occur. Although the judge accepted that upon an application under CPR Part 24.2 it would not be right to conclude that the allegations of fact could not be proved, she held that the equitable considerations relied on did not establish a good ground of unfair prejudice, as required by section 459, in the circumstances where the respondents had complied with the provisions of the Articles of Association.

16

The petition also alleged that the valuation had not been carried out appropriately because it had not been completed prior to the transfer period. That allegation was rejected by the judge upon the basis that there was no specific requirement in the Articles that the valuation should have been completed by the start of the period.

17

The petition also alleged that there should be implied into Article 13 an obligation upon the respondents to ensure that the petitioners should have access to information relating to the valuation and should have a right to make submissions to the valuer. The judge rejected that submission taking into account the terms of the Articles of Association. She concluded that such a term could not be implied as a matter of necessity.

18

Finally the petition alleged that the offer price of £2.10 per share was not the true market value of the shares in the shareholding and was not a value that any reasonable valuer, properly appointed and instructed, could have arrived at. The judge held that such an allegation was unsustainable in law because the effect of the Articles was to make the valuer an expert with the result that the valuation was final and binding. It was that allegation which this court considered fit to be argued on appeal.

19

The basis of the allegation in the petition that the price of £2.10 arrived at by...

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