Pennyfeathers Ltd and Others v Pennyfeathers Property Company Ltd and Others
Jurisdiction | England & Wales |
Judge | Mrs Justice Rose |
Judgment Date | 19 November 2013 |
Neutral Citation | [2013] EWHC 3530 (Ch) |
Docket Number | Case No: HC11C03068 |
Court | Chancery Division |
Date | 19 November 2013 |
[2013] EWHC 3530 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Rose
Case No: HC11C03068
Patrick Lawrence Q.C. and Michael Ryan (instructed by FIELD FISHER WATERHOUSE LLP) for the CLAIMANTS
Robert Levy Q.C. and Neil Mclarnon (instructed by GROSVENOR LAW) for the DEFENDANTS
Hearing dates: 8, 9, 10, 11, 14, 16, 17, 18 & 22 OCTOBER 2013
This claim arises out of the proposed development of a large plot of land on the Isle of Wight, to the southeast of Ryde. The land is known as Prestwood Grange Farm and Bartletts Green Farm ('the Farm') and comprises 76 acres. The First Claimant (Pennyfeathers UK) was set up by the Second and Third Claimants (Mr Steer and Mr Taylor) to exploit the opportunity to develop the Farm. The Claimants allege that the Second and Third Defendants (Mr Bowdery and Mr Attwell), at a time when they were directors of Pennyfeathers UK, acted in breach of their fiduciary duties towards Pennyfeathers UK by causing their company the First Defendant ('Pennyfeathers Jersey'):
i) to contract with the owner of the Farm on terms which were in their own interests and contrary to the best interests of Pennyfeathers UK; and
ii) to enter into options over land surrounding the Farm when those options should have been acquired by them on behalf of Pennyfeathers UK.
In 2001 the Farm was owned by Mr Ian McDowall and had in the past been used as a dairy farm. Before 2001, there had been some friction between Mr McDowall and local residents; an action group was formed, the Local Government Ombudsman had become involved and the Council of the Isle of Wight was considering what to do. A local estate agent mentioned the Farm to Mr Steer as having potential for development. Mr Steer contacted Mr Taylor with whom he had been friends for many years and who had more experience in land development. The two men visited the Farm in January 2002 and met Mr McDowall. In 2002 Mr McDowall granted Mr Steer and Mr Taylor an option over the Farm and an application for planning permission was made in April 2003. That application was unsuccessful. Despite this setback, Mr Steer and Mr Taylor continued with the plans for developing the Farm. On 13 April 2005 Mr Taylor and Mr Steer entered into a new option agreement with Mr McDowall ('the 2005 Option'). The 2005 Option was a substantial document covering 52 pages of terms. The relevant clauses for our purposes (referring to Mr McDowall as the Seller and Mr Steer and Mr Taylor as the Buyer) were as follows:
i) By Clause 2.1, the Seller granted to the Buyer the option of purchasing the Farm or any part of it at any time between 13 April 2005 and 10 August 2010 at a price calculated as (A — B — C) x 80 per cent, where A was the open market value of the area to be developed, B was the costs of development and C was 50 per cent of the professional fees.
ii) By Clause 3.1 the Buyer had to use reasonable endeavours to obtain planning permission for the Farm as soon as possible.
iii) By Clause 4.1 the Seller was prevented from making any planning application himself or allowing anyone other than the Buyer from making a planning application in respect of the Farm.
iv) By Clause 4.2 and 4.3 the Seller had to provide all reasonable assistance and support to the Buyer as requested by them and was prevented from doing anything that delayed, hindered or prejudiced them in the performance of their obligations under the agreement.
v) By Clause 13.1 the Seller undertook not to deal with or dispose of the Farm other than subject to the agreement and to require anyone to whom he transferred the Farm to enter into a deed covenanting to observe and perform his obligations under the agreement. The Seller was also prohibited from granting a new lease, tenancy, licence or easement affecting the Farm without the prior written consent of the Buyer.
vi) Clause 16 provided:
'16.1 The Buyer may (subject to the Buyer having obtained the prior written approval of the Seller which approval shall not be unreasonably withheld or delayed) either assign the Buyer's interest under this Agreement or
16.2 Execute a Declaration of Trust in favour of any company or individual of no less financial strength than the Buyer at the date of the Agreement
16.3 It shall be a condition precedent to any Assignment or Declaration of Trust that each assignee or Beneficiary (as the case may be) shall have delivered to the Seller's Solicitors a deed (to be prepared by the Buyer's Solicitors) containing covenants by the assignee or Beneficiary (as the case may be) in favour of the Seller to observe and perform the obligations on the part of the Buyer contained in this Agreement'
In late 2005/early 2006 Mr Steer and Mr Taylor realised that the project was too large for them to finance themselves. They approached Mr Attwell whom they had both known for many years and who was interested in becoming involved in the project. Mr Attwell in turn introduced them to Mr Bowdery who had experience in the construction industry and was said to have access to funding. Mr Taylor also brought in a business colleague of his, Derek Donnellan, who used to work for Bank of Ireland. Mr Donnellan's role was to sort out the business structure and to handle more formal matters as well as contributing more generally to ideas for developing the Farm. He was better able than Mr Taylor and Mr Steer to draw up legal documents and draft letters and minutes of meetings in appropriate language. Mr Donnellan operated through his company Market Distribution Solutions Ltd ('MDS'). Mr Donnellan incorporated Pennyfeathers UK in June 2006 as the vehicle which would take forward the Farm project. Pennyfeathers UK had an authorised share capital of 1000 ordinary shares of which Mr Taylor and Mr Steer had 480 shares each and Mr Donnellan held 40 shares.
Mr Attwell and Mr Bowdery have worked together on developments in the past. Mr Bowdery already had a company called Trimount Residential Ltd which he had used as a vehicle and at the end of November 2006, he and Mr Attwell set up a new company Trimount Residential (Isle of Wight) Ltd, the Fourth Defendant ('Trimount'). The five men met in June 2006 to discuss how Pennyfeathers UK would operate and to appoint officers of the company. On 10 January 2007 a Shareholders Agreement was concluded relating to Pennyfeathers UK. The parties to the agreement were Mr Taylor and Mr Steer personally, MDS (effectively Mr Donnellan) and Trimount. Broadly, the scheme that the Shareholders Agreement put in place was that Trimount would straight away buy 96 shares in total from Mr Taylor and Mr Steer at the price of £1,041.67 per share, thereby making an initial investment into Pennyfeathers UK of £100,000. Thereafter, Trimount had the right to buy a further 384 shares for the same price so that, if they exercised that right in full, in effect Mr Bowdery and Mr Attwell would own 48 per cent, Mr Steer and Mr Taylor would own 48 per cent together and Mr Donnellan would own 4 per cent. Trimount would 'buy' these shares by meeting the on-going expenses incurred by Pennyfeathers UK as the preparation of the planning application went forward, earning one share for every £1,041.67 it spent, up to a total of 480 shares. The shares Trimount earned would be transferred to it by Mr Taylor and Mr Steer in equal measure. Pennyfeathers UK's profits were to be distributed by way of dividend in proportion to the shareholdings in the company. The Shareholders Agreement also provided that Mr Taylor and Mr Steer would assign the 2005 Option to Pennyfeathers UK. In January 2007 Mr Attwell and Mr Bowdery were both appointed directors of Pennyfeathers UK. Mr Taylor and Mr Steer became directors in April 2007. Mr Donnellan was initially a director and company secretary as from June 2006 but resigned in June 2007. He became a director again in 2009. He, Mr Taylor and Mr Steer are still directors of Pennyfeathers UK.
Mr Bowdery and Mr Attwell took the project to Mr Basil Body, a wealthy investor who they thought would be interested in financing the deal. Mr Body was indeed interested and he then became involved in the discussions. He operates through a company called Kilnsea Developments Ltd.
The plan envisaged by the Shareholders Agreement was not in fact implemented. The 2005 Farm Option was never assigned to Pennyfeathers UK by Mr Taylor and Mr Steer. Why this did not happen is a matter of dispute between the parties. By the end of 2007 it was decided that Mr Bowdery and Mr Attwell would buy Mr Taylor, Mr Steer and MDS' shares in the project and take it forward by themselves. The proposal was that Mr Taylor and Mr Steer would receive a sum of money up front on conclusion of the buy-out agreement and then substantially more money if and when planning permission was obtained and the Farm sold on to developers. Mr Taylor and Mr Steer would pay MDS its share out of the monies paid to them. In return all three would transfer or cancel their shares in Pennyfeathers UK and Mr Taylor and Mr Steer would resign as directors. One of the main issues in this case is whether that proposed buy-out was ever the subject of a binding contract between the parties. The Claimants say that no agreement was ever concluded; that accordingly the terms of the Shareholders Agreement still operated and that the fiduciary duties owed by Mr Bowdery and Mr Attwell to Pennyfeathers UK continued in effect. Mr Bowdery and Mr Attwell say that a binding buy-out agreement was concluded at a meeting on 27 December 2007 held at Gunwharf Quays hotel in Portsmouth ('the Gunwharf Quays meeting')....
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