Parks Of Hamilton Holdings Ltd V. Colin Campbell

JurisdictionScotland
CourtCourt of Session
JudgeLady Dorrian,Lord Glennie,Lord Drummond Young
Judgment Date30 April 2014
Neutral Citation[2014] CSIH 36
Date30 April 2014
Docket NumberCA15/08
Published date30 April 2014

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

[2014] CSIH 36

Lady Dorrian Lord Drummond Young Lord Clarke

CA15/08

OPINION OF LADY DORRIAN

in the reclaiming motion

in the cause

PARKS OF HAMILTON

HOLDINGS LTD

Pursuers and Respondents;

against

COLIN CAMPBELL

Defender and Reclaimer:

_______________

Act: Sandison QC, Brodies LLP

Alt: Summers QC, Logan; Campbell Smith WS LLP

30 April 2014

Notes

[1] The reclaimer, the respondents and others were formerly shareholders in a company called LAGTA limited. The reclaimer was the managing director of the company. During 2007 he acted as agent on behalf of all the shareholders in negotiations for the sale of the whole shareholding of LAGTA to a company of which the parent company was the SPX Corporation. The original offer made for the purchase of the whole shareholding was a total of £4.75 million, later increased to £5.125m. The share price ultimately negotiated by the reclaimer was £21.50 per share for all shareholders except himself. His shares were to be purchased at a price of £26 per share. These sums represented a total purchase price of the whole shareholding of £5.2m. As a condition of the purchase, the purchasers required that the reclaimer, who was an employee of LAGTA, (a) ceased to be an employee of the new company and (b) entered into an agreement under which he would provide his services to them as a consultant for a period of up to 18 months after the sale.

[2] The offer was put to the board at a meeting dated 5 July 2007, in a letter from the purchasers of even date, in these terms which stated the following in respect of the purchase price:

"based on available information as well as what we know about the training industry and its relative profitability, SPX is prepared to offer a gross purchase price of £5.2m...the gross purchase price is based on a share price of £26 for each of the 36,152 shares of Mr Colin Campbell and £21.50 for each of the remaining 97,189 shares. SPX also expects to enter into a consulting agreement with Mr Campbell for up to 18 months, the terms to be negotiated".

[3] The minutes of the board meeting recorded that "SPX were insistent that Mr Campbell stay for a handover period and a consultancy agreement for up to 18 months would be negotiated", and concluded with the following:

"After discussion, all present agreed to accept the proposal from SPX and that matters should be left in the hands of the managing director, the financial and legal people to deal with SPX...".

A file note by the company accountant, Mr G. Cassells (GIC) recorded that the reclaimer had explained to the meeting that he was willing to enter into the consultancy agreement but:

"... he wished to be compensated for it. He explained that there was an amount which had been added to the price per share as this was potentially more tax efficient for him, however if the other shareholders did not accept it, the difference would not be added to their share price but would be added as remuneration and would come off the purchase price but he would not get it in as tax efficient a manner."

[4] The board were thus made aware of the differential in share price, and the reason given for it, as well as the proposal that the reclaimer should enter into a consultancy agreement with the purchasers, ceasing to be employed by them. The latter provisions required a compromise agreement between the new company and the reclaimer, settling any outstanding claims which he might have arising from his employment, and, at the same time, a separate consultancy agreement between them

A letter setting out the proposals and signed by the reclaimer was sent to all shareholders on 16 August 2007. In his original draft the reclaimer had made no reference to the premium which was to be attached to his shares. However, on the advice of Messrs Holmes McKillop, his own as well as the company's solicitors, this was revised. Messrs Holmes McKillop e-mailed him drawing attention to the statutory requirement that all shares be treated equally, and noting

"In this connection, you must therefore assume that if it is established that there is a differential then shareholders receiving a lesser sum than others may have cause to object to the procedures which were applied".

[5] The revised letter which was eventually sent to the shareholders contained the following passage:

"This agreement from VF/SPX is conditional upon me continuing for 18 months in a consultancy role. The share price has still to be finalised and is dependent on the exact position of the company at the time of completion but the indicative price is £21.50 per share with an enhanced share price of £26 for my share to reflect the 18 months consultancy period. Legal, financial and advisory expenses of approximately 5% will be deductible from the final agreed share value. In addition it is understood that VF/SPX will not ask all shareholders and directors, other than myself, to grant warranties or indemnities. You may feel the need to seek independent legal/tax advice regarding the contents of this letter...".

The pursuers maintained in this action that the price difference was acceptable to them on the sole basis, as represented to them by the reclaimer, that the differential reflected the remuneration to be afforded to him for agreeing to enter into the consultancy agreement. They subsequently discovered that the consultancy agreement entered into by the defender had provided for annual remuneration in the sum of £87,750.

[6] After proof the Lord Ordinary concluded that the reclaimer had indeed made this representation, giving the impression to the respondents that the matter was arranged thus to provide a tax efficient method of remunerating him for the consultancy. The Lord Ordinary held that this was a negligent representation on which the respondents acted to agree the sale of their shareholding. He held that the purchasers had no interest in how the £5.2m was split amongst the shareholders and that had the respondents rejected the proposal for a premium to be attached to the reclaimer's shares, the sale would nevertheless have proceeded, but with the £5.2m being divided pro rata amongst the shareholding. The Lord Ordinary concluded that the reclaimer stood in a fiduciary relationship to the remaining shareholders on whose behalf he was purporting to act during the negotiations, and as such he owed them a duty of care entitling them to damages for loss caused by them in reliance on his negligent representation.

[7] The Lord Ordinary's finding that, from the reclaimer's statement that the premium was justified by consultancy work he was to perform after the take-over was completed, the reasonably objective observer would have concluded that there was a connection between the premium and payment under the consultancy agreement, was not challenged in this reclaiming motion. However, the reclaimer maintained that he should not have been held liable in damages since the solicitors acting for the shareholders, Holmes McKillop, were involved not only in the negotiating of the share purchase agreement, but the compromise agreement and the consultation agreement. In the course of negotiations they became aware that the reclaimer was to be remunerated for his consultancy. The draft consultancy agreement, which provided for payment to the reclaimer of annual remuneration in respect of his consultancy services, and made no reference to the share premium, was sent by the purchaser's agents to Holmes McKillop on 26 November 2007. Since Holmes McKillop acted for all shareholders, including the respondents, this knowledge must be imputed to them and robbed them of any ability to recover on the basis of negligent misrepresentation.

[8] On the role of Holmes McKillop, the Lord Ordinary held that the consultancy transaction was "a wholly separate matter involving himself and the new board". He noted that "some months" after the offer to purchase the shares, the purchasers "negotiated quite separately with Mr Campbell regarding the (consultancy agreement). In those negotiations Mr Campbell was not acting on behalf of the other shareholders...". The Lord Ordinary went on to say:

"[124] If the issue had arisen for decision, I would have had difficulty with the proposition that the defender should avoid any liability because of the lawyers' knowledge of the terms of the consultancy agreement. There are contexts in which an agent may have authority (actual or ostensible) to be given notice of certain facts, resulting in deemed or constructive knowledge on the part of the principal, but this is not such a case. Similarly, there can be no question of the solicitors having been given authority to express the shareholders' consent to any agreement or proposed course of action, nor did they ever give such consent. The defender did not impart information to the lawyers on the assumption that they would then inform the shareholders, nor would it have occurred to them to do so. In reality Holmes MacKillop acted for the defender alone in respect of the compromise and consultancy agreements. This was reflected in the terms of their fee note (production 7/20)."

That fee note was addressed to the reclaimer as the sellers' representative, and included a composite fee for professional services in connection with the sale of the whole shareholding to include "(3) negotiating terms of Share Purchase Agreement with Eversheds LLP...(6) revising and agreeing the terms of consultancy agreement and compromise agreement for Mr. Campbell".

Submissions for reclaimer

[9] Counsel for the reclaimer submitted that the Lord Ordinary's conclusion that "in reality" the solicitors were agents for the reclaimer in connection with the compromise agreement and consultancy agreement and not the other shareholders was not supported by the evidence, and he should have found that they acted for all shareholders throughout the transaction,...

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