Profinance Trust SA v Gladstone

JurisdictionEngland & Wales
Judgment Date02 July 2001
Neutral Citation[2001] EWCA Civ 1031,[2001] EWCA Civ 1133
Docket NumberNo A3/2000/0435,Case No: A3/2000/0435
CourtCourt of Appeal (Civil Division)
Date02 July 2001
Profinance Trust Sa

[2001] EWCA Civ 1031


Lord Justice Schiemann

Lord Justice Robert Walker And

Mr Justice Lloyd

Case No: A3/2000/0435





Royal Courts of Justice

Strand, London, WC2A 2LL

(Transcript of the Handed Down Judgment of Smith Bernal Reporting Limited, 190 Fleet Street London EC4A 2AG Tel No: 020 7421 4040, Fax No: 020 7831 8838 Official Shorthand Writers to the Court)




This is the judgment of the court on an appeal from an order made in the Companies Court on 31 March 2000 by Mr Kim Lewison QC, sitting as a deputy judge of the Chancery Division. The appellant is a Panamanian company, Profinance Trust SA ("Profinance"). The order was made on the hearing of a petition under s.459 of the Companies Act 1985 presented by Profinance as a minority shareholder of Americanino Ltd ("the company"). The only respondent to the petition was Mr Paul Gladstone, the majority shareholder. The deputy judge ordered Mr Gladstone to purchase Profinance's 40 per cent of the company's issued share capital for £46,400. But he ordered Profinance to pay half of Mr Gladstone's assessed costs of the petition. The deputy judge himself granted permission to appeal. His judgment is reported at [2000] 2 BCLC 516.


The background and history of ss.459–461 of the Companies Act 1985 are very clearly set out in Part 7 of the Law Commission's Consultation Paper on Shareholder Remedies (1996, no 142). The general purpose of these provisions is to provide a shareholder who has been unfairly prejudiced by the conduct of a company's affairs with a remedy more flexible and less drastic than a winding up on "just and equitable" grounds. The basic principles of law underlying the remedy have recently been analysed by Lord Hoffmann (with whom the rest of the House of Lords concurred) in O'Neill v Phillips [1999] 1 WLR 1092.


It is well known among company lawyers that although ss.459–461 were intended to provide a fairly summary remedy for minority shareholders who have been unfairly prejudiced, proceedings under the sections often become bogged down in a mass of written evidence containing numerous accusations and counter-accusations reminiscent of petitions and cross-petitions alleging cruelty under the old divorce law. In Re Saul D Harrison & Sons [1995] 1 BCLC 14, 22 Hoffmann LJ spoke of the "notoriously burdensome nature of s.459 proceedings" (and one of the sections of his speech in O'Neill v Phillips, at p.1104 is headed "No-fault divorce?"). This is one of the problems addressed in the Law Commission's consultation paper and in the Report on Shareholder Remedies (1997, no.246) which followed it.


This case has unfortunately followed that all too common pattern. Even more unfortunately it has ended in an extraordinary procedural tangle. It is therefore necessary to describe the proceedings below in as much detail as can be derived from the recollections of Mr Paul Emerson and Mr Pushpinder Saini, who appeared below for Profinance and Mr Gladstone respectively. Except for one point which is not ultimately of much importance, their recollections are the same.


The petition was presented by Profinance on 30 December 1997 but was not heard until 27 March 2000. In the meantime the court file accumulated points of defence and a considerable volume of written evidence, consisting partly of expert reports on valuation from accountants and partly of witness statements from Mr Domenico Serra, Mr Gladstone and others. (Mr Serra is an Italian citizen, resident in Panama, who is the moving spirit behind Profinance.) This volume of evidence raised numerous contentious issues of fact but in the event none of this evidence was presented in open court.


The hearing was fixed to begin on a Monday. On the previous Thursday (23 March 2000) the two accountants who were to be expert witnesses signed a brief unreasoned report agreeing valuations of the whole of the company's share capital as at five different times (the earliest being April 1997, when Mr Serra had resigned as a director of the company, and the latest being March 2000, in other words at the time of the report). The deputy judge was informed, on Friday 24 March, that there would be no witnesses. But at some stage (possibly during the weekend) he read all the papers. This court was not given a detailed account of the negotiations between the parties but it is clear that the partial compromise which they achieved was reached under severe pressure of time. That appears from (among other things) the original skeleton arguments prepared for the hearing. Had there been more opportunity for reflection the parties' legal advisers would have realised that if there was not going to be a complete compromise, and the judge was going to be asked to perform his judicial function, he would have to have some factual basis (either agreed or determined by him) on which to act.


What happened on Monday 27 March 2000 was described in the deputy judge's judgment. After referring to the court's power under s.461 he said ( [2000] 2 BCLC at p.519),

"However, the jurisdiction is a conditional one. It only arises if the court is satisfied that the petition is well founded. At the beginning of the hearing, Mr Saini for the respondent conceded that the petition was well founded. Mr Emerson for the petitioner conceded that the agreed valuations eliminated any element of depreciation of the shares attributable to the alleged misconduct. Those two concessions gave me jurisdiction to proceed, without the need to identify which particular allegations in the petition were made out."

The concessions on their own gave the deputy judge jurisdiction, if he was satisfied that the concessions were properly made. But on their own they were the most meagre basis on which to exercise judicial discretion as to the time at which Profinance's shares in the company should be valued.


Mr Saini did attempt to put some evidence before the court. He applied, at an early stage in the hearing, to put in further evidence from Mr Gladstone as to the recent history of the company's business and the reasons why (as appeared from the agreed experts' report) its value had increased so much (the three competing valuations, after two had been discarded, being £82,000 in April 1997, £80,000 in December 1997, and £215,000 in March 2000). Mr Emerson opposed the application, partly because Mr Saini did not have any witness statement available. The deputy judge was willing to grant an adjournment on terms as to costs, but after considering the terms Mr Saini elected to continue without the new evidence.


So no new evidence was adduced. Furthermore the status of the witness statements and their exhibits (which the deputy judge had read before he came into court) was, most unfortunately, left in the air. Miss Catherine Newman QC (who led Mr Emerson in this court) has trenchantly criticised the judge for exercising his discretion by reference to matters on which there was no evidence before him. But that does not seem to have been how the matter was argued at the hearing on 27 March 2000. The facts which are set out at the beginning of the deputy judge's judgment (see para 14 below) can safely be taken as a core of undisputed fact which was, either expressly or tacitly, accepted by both sides at the hearing.


The partial compromise which the parties reached at the last moment might be thought to have greatly simplified the deputy judge's task. But any such impression would be misleading. As has been acknowledged in this court, it presented the deputy judge with a very difficult task in exercising his discretion in relation to the narrow issue which he had to decide. Judicial discretion can be exercised only by reference to a particular set of facts, established either by agreement or by the judge's findings. Judges are naturally disposed to encourage parties to settle disputes, and where they cannot settle them completely to limit the number of issues in dispute. But in this case it might be said that the outstanding issue was presented to the deputy judge in a way which came close to denying him the material required for its determination.


It will be apparent that the price at which the deputy judge ordered a sale £46,600 is not 40 per cent of any of the three agreed sums mentioned in para 8 above. The explanation of that is that it is 40 per cent of £80,000 (the agreed value at the date of the petition) uplifted by 45 per cent to compensate for the delay in Profinance receiving the money and being able to lay it out in some other investment opportunity.


Miss Newman, as well as criticising the deputy judge for exercising his discretion so as to take the value at the date of the petition, has also criticised him for an error of law in supposing that he could include an element of interest, or quasi-interest, in the purchase price. It appears that at the hearing both sides started off from the position that s.461 did not authorise interest or quasi-interest (in respect of a period before the date appointed for the sale) but that Mr Saini modified his position once it became clear that the deputy judge was attracted by that possibility. In this court he has supported the deputy judge on both issues, that is what may be called the quasi-interest point and the date of valuation point.

The undisputed facts


In these circumstances the safest course is to restrict this court's awareness of the facts (although we, like the deputy judge, have read all the witness...

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