Perry v Day

JurisdictionEngland & Wales
JudgeMr Justice Rimer,MR JUSTICE RIMER,JUDGE RICH QC
Judgment Date22 October 2004
Neutral Citation[2004] EWHC 3372 (Ch),[2004] EWHC 1398 (Ch)
Docket NumberHC03C02490
CourtChancery Division
Date22 October 2004
Between:
(1) John Perry
(2) Sheila Cowlishaw
Claimants
and
Terry Day
Defendant

[2004] EWHC 1398 (Ch)

Before:

Mr Justice Rimer

HC03C02490

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand, London, WC2A 2LL

Mr Alexander Hill-Smith (instructed by Brookstreet Des Roches) appeared for the claimants

Mr John de Waal (instructed by Darbys) appeared for the defendant

Hearing dates: 5 and 6 May 2004

I direct pursuant to CPR PD 39, para. 6, that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic

The Honourable Mr Justice Rimer

Mr Justice Rimer MR JUSTICE RIMER

Introduction

1

This action was started by a claim form dated 9 July 2003. The claim is for damages for the alleged breach by the defendant of a shareholders' agreement. This judgment is on two issues which have been ordered to be heard as preliminary issues. First, the defendant claims that the action should be struck out as an abuse of the process of the court: he says it raises issues which should have been raised, if at all, in certain earlier proceedings which were commenced in 2000 and settled in February 2003. Secondly, if wrong on that, the defendant claims that the loss for which the claimants sue merely reflects a loss caused to the company the subject of the shareholders' agreement and that therefore only the company can sue in respect of it. Both issues raise questions considered by the House of Lords in Johnson v. Gore Wood & Co (a firm) [2002] 2 AC 1.

2

I heard a limited amount of oral evidence. In addition, it is common ground that, for the purposes of the two issues, I must assume that certain of the allegations of fact in the particulars of claim are capable of being proved at trial.

3

The claimants are John Perry and Sheila Cowlishaw, for whom Mr Hill-Smith appeared. The defendant is Terrence Day, for whom Mr de Waal appeared. Sheila Cowlishaw is the widow of Robin Cowlishaw, who was Mr Perry's original co-claimant. He died intestate on 6 April 2004, leaving what I was told was a small estate. No grant of representation to his estate had been obtained by the time of the hearing, and at the beginning of it I made an order under CPR Part 19.8(1)(b) adding Mrs Cowlishaw as a claimant in place of her late husband and appointing her to represent his estate. Before detailing the facts, I will summarise the essence of the claim against Mr Day.

4

Mr Perry is a shareholder of Broadstone Homes Limited ("Broadstone"). Mr Cowlishaw was a shareholder of Broadstone until his death. Mr Day is a former shareholder. Broadstone is the company in respect of which, in 1995, Mr Perry, Mr Cowlishaw and Mr Day entered into the shareholders' agreement the alleged breach of which founds the basis of the action. In 1996, Broadstone bought from Mr and Mrs Day certain land it intended to develop for residential purposes. At the same time it also bought from them, for £125,000, what it claims it understood was an access way between that land and the public highway. It later emerged that in fact Broadstone had not acquired a title to the whole of the necessary access, but that Mr Day and his wife, Marion, had retained a small part of it. As Broadstone also needed that part for access to the development land, Mr and Mrs Day decided to turn their retention of it to their own commercial advantage; and the outcome was that Broadstone eventually purchased it from them for a further £110,000. The shareholders' agreement had imposed an obligation on Mr Day to use his best endeavours to promote the interests of Broadstone. The claimants' case is that, in exploiting the retained part in the way he did, Mr Day breached that obligation and so caused loss to his two co-shareholders. By his defence, Mr Day has raised (inter alia) the two issues I have outlined. I will now relate the story in more detail.

The facts

5

Prior to March 1989 Stonely Properties Limited owned College Farm, Chadlington, Oxfordshire. Mr Day is a builder and was a director and member of Stonely. In 1989, Stonely conveyed College Farm to Mr and Mrs Day as joint tenants. Access between College Farm and the public highway was over a track of land the main part of which I will call "the strip" and the last part of which (that adjacent to the highway) has been called "the bellmouth land". According to the Particulars of Claim, the land that Stonely conveyed to Mr and Mrs Day included the strip but not the bellmouth land. When, however, Mr and Mrs Day were later registered at HM Land Registry as proprietors of College Farm, the land registry plan showed both the strip and the bellmouth land as part of their title.

6

In 1995, Mr Perry, a businessman, met Mr Day. Mr Day introduced Mr Perry to Mr Cowlishaw, a financial consultant. The three of them incorporated Broadstone in July 1995. The purpose behind its incorporation was the residential development of land adjacent to College Farm known as Stocks Gardens, which Mr and Mrs Day had an option to buy. Mr Perry was to be the main source of the finance that Broadstone required in order to buy and develop Stocks Gardens. The strip and the bellmouth land provided the only access between Stocks Gardens and the highway and therefore it was essential for Broadstone either to acquire both those pieces of land or at least a right of way over them appurtenant to Stocks Gardens.

7

Mr Perry originally held 46% of the ordinary shares in Broadstone. By 1998 he held 51%. He has always been a director. Mr Cowlishaw originally held 5% of the shares, but by 1998 he held 14%. He was appointed a director on 13 July 1995, but resigned on 5 November 1998. He was the company secretary at all material times. Mr Day initially held 22% of the shares, but by 1998 he held 30%. He became a director on 13 July 1995 but resigned on 22 January 1996. He was re-appointed a director on 30 July 1997 but resigned on 5 November 1998. Mr Day's brother held 5% of the shares. A Mr Holley originally held 22% of the shares, but in 1998 he transferred them to other shareholders, so increasing their respective holdings as I have described.

8

On 11 August 1995, the Broadstone shareholders entered into a shareholders' agreement. It was drafted on the basis that Broadstone had not yet been incorporated, whereas I understand that by then it had been. Nothing, however, turns on that. The only relevant provision is the following undertaking:

"11.1 The Shareholders each respectively UNDERTAKE with the others that they will use their best endeavours to promote the interests and prospects of the Company."

9

On 18 October 1996 Mr and Mrs Day exercised their option to buy Stocks Gardens, which they immediately sold on and transferred to Broadstone. On the same day, but by a separate transfer, and in consideration of £125,000, they transferred to Broadstone "the land shown edged red on the plan annexed hereto being part of the land comprised in [title no. ON 129778]."

10

Paragraph 9 of the Particulars of Claim asserts that both Broadstone and Mr Day assumed that the land transferred by that separate transfer gave Broadstone full access between Stocks Gardens and the highway – that is, that it included both the strip and the bellmouth land. It asserts that the price paid of £125,000 was calculated on this basis. I find that Broadstone did understand that, in exchange for its £125,000, it was acquiring all the land necessary to give it full access to the public highway; and Mr Day (who also gave oral evidence) admitted in his witness statement that both his and his wife's understanding in October 1996 was to the same effect. In fact, as paragraph 10 of the Particulars of Claim asserts, the transfer did not include the bellmouth land, which remained vested in Mr and Mrs Day. Mr Day admits this was a mistake, which he says was the fault of the solicitors who acted for Broadstone in the October1996 transactions. They were Mary Lyden & Co ("Lyden"). No-one realised the mistake at the time. It was only discovered later.

11

Broadstone's title to the land transferred to it in October 1996 was registered at HM Land Registry on 25 June 1997. The title number is ON 195690 and the title plan includes both Stocks Gardens and what appears to the casual eye to be an access to the highway. Although, however, Broadstone's registered title included the strip, it did not include the bellmouth land. On some date after October 1996 the title to three parcels of land still owned by Mr and Mrs Day were given a separate title number at HM Land Registry, No. ON 206897. The main parcel was land known as "the tank land" lying to the west of the strip. Another parcel was the bellmouth land. The position according to the titles registered at HM Land Registry was, therefore, that Broadstone had no title to a key part of the access, which remained vested in Mr and Mrs Day. On 24 July 1998, Mr and Mrs Day charged the tank land and the bellmouth land to Mr Day's solicitor in his capacity as trustee of a pension fund.

12

Planning permission was obtained for the building of eight houses on Stocks Gardens. In 1998, Charles Church Limited ("CCL"), developers, opened negotiations with Broadstone for the purchase of both Stocks Gardens and the access to the public highway. On 31 July 1998, they offered £665,000 for this land. The problem about the bellmouth land emerged later when their solicitors did a Land Registry index map search and discovered that it was registered not in the name of Broadstone, but in the joint names of Mr and Mrs Day. For obvious reasons, a good title to the bellmouth land (or at least to a right of way over it) was essential to CCL.

13

Following the discovery of the problem, CCL imposed pressure directed at ensuring that they would also obtain a title to the bellmouth land. To that end Bower & Bailey, Broadstone's...

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