Prudential Assurance Company Ltd (Respondents (Plaintiffs) v (1) Newman Industries Ltd, (Respondents (1st Defendants) (2) Alan Frank Bartlett and Others (Appellants (2nd & 3rd Defendants)

INDEX

7.01 The problems involved in this case were caused by the fact that the Prudential were the wrong plaintiffs.

7.02 If, indeed, Mr Bartlett and Mr Laughton defrauded Newman then the proper plaintiff was Newman. In an action by Newman against Mr Bartlett and Mr Laughton for defrauding the company, and against TPG for enjoying the fruits of the fraud, the circular would be largely evidential. The principal frauds pleaded would have been frauds practised on the directors and practised on Mr Cooper. Each fraudulent representation or fraudulent concealment would have been pleaded with particularity.

7.03 Furthermore, in action by Newman against Mr Bartlett and Mr Laughton all the documents necessary to enable Newman to plead its case and to make sensible discovery would have been in the possession of Newman at the outset. Newman would have known which documents held by TPG were relevant to be discovered. Newman would then have been in a position to determine which of the discovered documents were sufficiently important to produce to the court.

7.04 Mr Caplan frankly admitted that the Prudential pleaded and relied upon the circular because that was the only document revealed to the Prudential as a shareholder and the only document upon which the Prudential could make out a case on the pleadings prior to discovery. Mr Caplan also frankly admitted that conspiracy was only pleaded because the Prudential thought that a direct action could not succeed in the absence of a plea of conspiracy. The direct action was only pleaded because it was feared that the derivative action might be defeated by the rule in Foss v. Harbottle.

7.05 In these circumstances discovery was a shambles, there was no proper selection of documents to be used at the trial because no one knew what to select and what to discard, and the pleadings were never adequately clarified or timeously amended. The complications and obscurities of the statement of claim and the reliance on the circular and the enormous weight of the discovered documents made it impossible for the defendants adequately to prepare for the trial or to foresee the course or length of the trial or to cope with the many trials of strength with regard to their recollection and probity.

7.06 The obscurities and confusion of the pleadings, the mass of documentary evidence, the fact that the Prudential, not being the proper plaintiffs, had no knowledge of what had gone on inside Newman and the assumed need to prove conspiracy led to the plaintiffs submitting that every Newman and TPG document and every act or omission by Mr Bartlett or Mr Laughton was a badge of fraud, and to submit that Mr Cooper's valuation was only explicable by cunning on the part of Mr Laughton and incompetence on the part of Mr Cooper, and that the directors of Newman were bemused and the advisers of Newman blinded.

7.07 The task of the judge was made very difficult because the pleadings of the plaintiffs were concentrated on the circular for tactical reasons connected with the personal action; the statement of claim was vague and obscure; the real issues were buried under general assertions of trickiness. The defendants' advisers, no doubt overwhelmed by the number of ingenious accusations of fraud which emerged, were not able adequately to assist the judge by defining those accusations which were material and sounded in damages, those accusations which were relevant but which did not give rise to any damage, and those accusations which were wholly irrelevant save as to credit.

As the case proceeded and the nature of the plaintiffs' accusations were gradually disclosed, it is not surprising that the judge decided to intervene and himself to ask questions in order to clarify the evidence being given by the witnesses. But we must criticise some of the interventions of the judge. When Mr Murray was giving evidence, some of the interventions appeared only capable of being answered in a way which would confirm the views already formed by the judge. In the case of the evidence of Mr Bartlett and Mr Cooper some of the judge's interventions indicated that he had already formed a hostile view of the explanations that the witnesses were trying to give. Experienced counsel represented the plaintiffs and Mr Bartlett. The judge should have allowed Mr Scott to elucidate from his witnesses the evidence that they were trying to give, without interruption save insofar as it was necessary for clarification. And it was for Mr Scott and Mr Caplan to make their points in cross-examination. It is not appropriate for leading questions to be put from the Bench.

In the result in certain important fields of controversey, the judge never fully appreciated the force of the defendants' case. With regret we have to say that the judge's descent into the arena did not assist the trial of the action and hampered Mr Scott in the presentation of the defence.

7.08 The judge found a conspiracy which had never been pleaded, and fraudulent conduct which had never been particularised. The plaintiffs, in this court, attempted to overwhelm us with thirty or more accusations of fraud, but in the end fell back on six claims which they submitted had been pleaded and found proven. Of those six the second was abandoned in the course of the submissions of Mr Caplan.

7.09 The first claim concerns the commercial reasons.

Those reasons must be read in the context of the information furnished by the circular with regard to the size of the minority shareholdings which were to be acquired in associated companies, the activities and trading results of the principal associated companies and the management influence said to have been obtained by the vendor TPG through those minority shareholdings. So read, the commercial reasons informed the Newman shareholders that Newman would benefit from a development and expansion of Newman's international trade which would result from a partnership between Newman and the associated companies secured by the acquisition of TPG's minority shareholdings. In effect, Mr Bartlett was imparting to the Newman shareholders his belief that he could influence the management of the affairs of Newman and the associated companies for the benefit of all concerned. So he believed. Therefore to this limited extent the circular was not misleading or tricky to the knowledge of Mr Bartlett and Mr Laughton. But it does not follow, because there were valid commercial reasons for the transaction, that Mr Bartlett and Mr Laughton, as directors of Newman, recommended the transaction to the Newman shareholders in the bona fide belief that it was a transaction into which Newman ought to enter. On this aspect we express our conclusion in paragraph 7.21 below.

7.10 The second claim was abandoned.

7.11 The third claim was that the circular was tricky and misleading in concealing that the attributed values of quoted associated companies were much higher than their current stock market values: see statement of claim, para.15.05 added by amendment after the trial began, and the judgment,page 162F.

7.12 The argument is that Appendix 3 of the circular ought to have included a comparison between the stock market price and Mr Cooper's value of each quoted shareholding in Metropole, Dover, Agar Cross and Clough.

7.13 The exact charge against Mr Bartlett and Mr Laughton is still not spelled out. The claim may mean that Mr Bartlett and Mr Laughton believed that Mr Cooper's value exceeded a fair. value for Newman to pay. It may mean that Mr Bartlett and Mr Laughton knew and believed that it was excessive for Newman to pay a price significantly in excess of the stock market price.

It may mean that Mr Bartlett and Mr Laughton believed that Mr Cooper's value represented a fair price for Newman to pay but realised that nevertheless the shareholders of Newman ought to have an opportunity of comparing the Stock Exchange price with Mr Cooper's value.

7.14 Whichever charge is made we consider that it has not been proved.

7.15 There is no evidence that Mr Bartlett or Mr Laughton...