Phillips v Brewin Dolphin Bell Lawrie Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MORRITT,LORD JUSTICE LAWS,LORD WOOLF, MR |
| Judgment Date | 17 March 1999 |
| Judgment citation (vLex) | [1999] EWCA Civ J0317-9 |
| Docket Number | CHANF 98/0311/3 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 March 1999 |
[1999] EWCA Civ J0317-9
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(MR JUSTICE EVANS-LOMBE)
Royal Courts of Justice
Strand
London WC2A 2LL
The Master of the Rolls
(Lord Woolf)
Lord Justice Morritt
Lord Justice Laws
CHANF 98/0311/3
MR G MITCHELL QC and MR C SMITH (Instructed by Messrs Goodman Derrick, London, EC4A 1EQ) appeared on behalf of the Appellant
MR R SLADE (Instructed by Messrs Cameron McKenna, London, EC1A 4DD) appeared on behalf of the Respondent
Wednesday 17 March 1999
A.J.Bekhor & Co. ("the Company") carried on the business of stockbrokers through agents, known as half commission men, with whom it shared the commission payable by the client for the business transacted on his or her behalf. It carried on business from premises at 1 Singer Street, London in which it accommodated the back office staff it employed and the leased computers it used in the course of its business to record the transactions undertaken on behalf of its clients. On 10th November 1989 the Company sold part of its business and some of the assets employed in it to Brewin Dolphin & Co. Ltd ("Brewin Dolphin"). The sale involved a number of elements. The following were the most significant. First, by an agreement dated 17th October 1989 and made between the Company (1) and Bekhor Securities Ltd ("BSL") (2) ("the Hive-down Agreement") that part of the business which Brewin Dolphin wished to buy was hived down into a wholly owned subsidiary of the Company. The part so hived down included the goodwill of the business, the benefit of all agreements with clients and the contracts of employment with the back office staff; but there were excluded the office premises and the computer hardware and software used by the Company. Second, by an agreement dated 10th November 1989 and made between the Company (1), Mr Jonathan Bekhor (2) and Brewin Dolphin (3) ("the Share Sale Agreement") the Company sold to Brewin Dolphin the issued share capital of BSL for "the total consideration [of] £1 payable on completion". Third, by an agreement dated 10th November 1989 and made between the Company (1) and the parent company of Brewin Dolphin, The Private Capital Group Ltd ("PCG") (2) ("the Lease Agreement") the Company let to PCG for a term of four years commencing on 11th November 1989 at a rental of £312,500 payable annually in arrears the McDonnell Douglas computer equipment used in its business and leased from Wirral Equipment Ltd and Asterrose Ltd. Fourth, by an agreement collateral to the Lease Agreement dated 10th November 1989 and made between the Company and PCG ("the Collateral Agreement") the Company agreed that it would perform all obligations and pay all sums due under the leases under which it held the computer equipment comprised in the Lease Agreement.
On 17th January 1990, Wirral Equipment Ltd and Asterrose Ltd terminated the leases of such equipment granted by them to the Company. On 2nd March 1990 PCG, relying on its acceptance of the repudiation of the Lease Agreement constituted by the Company's failure to perform the leases with Wirral Equipment Ltd and Asterrose Ltd, claimed to be discharged from further performance of the Lease Agreement. The Company was compulsorily wound up on 24th April 1990; a bankruptcy order was made against Mr Bekhor in July 1990.
The proceedings with which this appeal is concerned were commenced in June 1994. On 24th June the Company, through its Liquidator, issued a writ against both Brewin Dolphin and PCG seeking payment of the sums, £1,250,000, it claimed to be due to it under the Lease Agreement by way of rent and damages for its breach. On 28th June the Liquidator applied to the Companies Court under s.238 Insolvency Act 1986 for a declaration that the Share Sale Agreement was a sale of the shares in BSL at an undervalue and for payment to the Liquidator of £2.5m. or such other sum as might be required to restore the Company to the position it would have been in but for the sale at such undervalue. The proceedings were subsequently consolidated and came before Evans-Lombe J in November 1997. By his judgment given on 28th January 1998 he determined that (1) the value of the shares in BSL sold by the Company to Brewin Dolphin on 10th November 1989 was £1.2m. from which he deducted £150,000 as the second hand value of the computer to which Brewin Dolphin was entitled but which was retained by the Company, (2) the consideration for such sale was the specified price of £1 and £325,000 in respect of the redundancy claims of the employees of the Company the benefit of whose contracts was hived down to BSL, (3) the sale of the shares in BSL was therefore a sale at an undervalue of £725,000; (4) PCG had been entitled to accept the repudiation of the Company of the Lease Agreement as discharging it from further performance thereof and so was not liable to the Company for £1,250,000 or any other sum thereunder. The overall consequence of the judge's order was to require Brewin Dolphin to pay to the Liquidator £1,008,500 and the costs of the proceedings concerning the alleged undervalue.
This is the appeal of Brewin Dolphin and the cross-appeal of the Company. The issues they raise may be summarised as follows: (1) What was the value of the shares in BSL to be taken into account for the purposes of s.238 Insolvency Act 1986? Was it £nil as contended by Brewin Dolphin or was it £1,050,000 as found by the judge and as supported by the Company? Or was it £2.5m, as originally contended by the Company and preserved by its respondent's notice if, contrary to its primary submission, this court is prepared to go behind the judge's findings? (2) What was the value of the consideration provided to the Company? Was it limited to the sums found by the judge amounting to £325,001 or should it also have included the value of the covenant of PCG to pay the annual rent of £312,500 over the next four years? (3) Was the judge right to conclude that the Company had repudiated the Lease Agreement so that PCG was not liable for the annual rent of £312,500? If the judge was wrong in this respect only, was the Company entitled both to compensation for the undervalue and to the unpaid rent? I will deal with each of these issues in due course, but first, it is necessary to set out the material legislation and to sketch in some more of the detail.
The provisions of the Insolvency Act 1986 concerning transactions at an undervalue were originally introduced into the Insolvency Act 1985 in consequence of a recommendation in the Cork Report. It was not suggested that there was any help to be derived from the Report not already available from the terms of the sections themselves. So far as material s.238 provides:
(1) [application of the section]
(2) Where the company has at a relevant time (defined in section 240) entered into a transaction with any person at an undervalue, the office-holder may apply to the court for an order under this section.
(3) Subject as follows, the court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction.
(4) For the purposes of this section and section 241, a company enters into a transaction with a person at an undervalue if-
(a) the company makes a gift to that person or otherwise enters into a transaction with that person on terms that provide for the company to receive no consideration, or
(b) the company enters into a transaction with that person for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by the company.
(5) The court, shall not make an order under this section in respect of a transaction at an undervalue if it is satisfied -
(a) that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and
(b) that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company.
S.241 sets out a wide range of orders the court may make in case of both transactions at an undervalue and in the case of voidable preferences. There is a provision similar to s.238 in the case of personal insolvency (s.339) and in the case of both personal and corporate insolvency where the transaction at an undervalue was entered into with intent to defraud creditors (s.423). In each case it is provided by s.436 -
"In this Act, except in so far as the context otherwise requires (and subject to Parts VII and XI)-
…..
"transaction" includes a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly."
I will defer consideration of the questions of the construction and application of those provisions until I have described the background in somewhat greater detail. The facts are comprehensively set out by the judge in his careful judgment reported at [1998] 1 BCLC 700. In the circumstances I can deal with the matter more shortly.
The Company was incorporated in 1933 as an unlimited company. It carried on business as a stockbroker at 1 Singer Street, London, EC2A 4DR. It was a member of the International Stock Exchange and of the Securities Association. It had access to a large number of private clients through...
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