Re Bird Precision Bellows Ltd

JurisdictionEngland & Wales
JudgeLORD JUSTICE OLIVER,LORD JUSTICE PURCHAS
Judgment Date03 July 1985
Judgment citation (vLex)[1985] EWCA Civ J0703-9
Docket Number85/0430
CourtCourt of Appeal (Civil Division)
Date03 July 1985
Between:
Ernest Armstrong
Stanley David Nin
Mrs. Edith Nin
Graham Stanley Nin
David Colin Nin
Mrs Lorraine Yvonne Briggs
Petitioners (Respondents)
and
Bird Precision Bellows Limited
Mr Bird
Mrs Bird
Mr Rowden
Pipe-Chem (Holdings) Limited
Respondents (Appellants)

[1985] EWCA Civ J0703-9

Before:

Lord Justice Oliver

and

Lord Justice Purchas

In The Matter of Bird Precision Bellows Limited

and

In The Matter of The Companies Acts 1948 To 1980

85/0430

1981 No. 003420

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

(MR. JUSTICE NOURSE)

Royal Courts of Justice

MR. CHARLES SPARROW QC and MR. ISAAC JACOB (instructed by Messrs. Goldberg Blackburn & Howards, Solicitors, Manchester M3 2BU) appeared on behalf of the Respondents (Appellants)

MR. WILLIAM STUBBS QC and MR. CHARLES PURLE (instructed by Messrs. Knight & Sons, Solicitors, Newcastle under Lyme ST5 1RL) appeared on behalf of the Petitioners (Respondents)

LORD JUSTICE OLIVER
1

This is an appeal against an order of Mr. Justice Nourse (as he then was) made on 28th October 1983 determining,pursuant to an order previously made by Mr. Justice Vinelott on 23rd November 1981, that shares in a private company which were to be purchased by the appellants in this appeal, who were the respondents to a petition, at a price of £18.25 each. I read at this stage only the last three lines of the learned judge's judgment, which is reported in 1984 Chancery at p.419. At p.436 his Lordship concluded this part of his judgment in these terms:

"I value the shares of the company as a whole at £547,500. I determine the price at which the respondents are jointly and severally to purchase the shares of the petitioners at £18.25 each".

2

The way in which this matter came before the court was this: The company was a private company, Bird Precision Bellows Ltd, which had been incorporated in 1975. The petitioners, Mr. Armstrong and Mr. Nin, were the holders of some 7,800 shares out of the total issued capital of 30,000 shares. The learned judge found that the company had been incorporated in the first instance as a sort of quasi-partnership between the petitioners and the respondents, who were the majority shareholders, for the exploitation of certain processes with which the principal respondent, Mr. Bird, was very much concerned and in which he was very expert. The two petitioners were there substantially, I think, in the role of consultants and gave their services to the company in the early stages of its career at very much less than the value which was properly to be attributed to those services.

3

It is unnecessary to go in any great depth into the facts. The parties fell out in August of 1981. The petitioners were then removed from the board of directors of the company and in October 1981 they presented a petition under s.75 of the Companies Act 1980, in which they claimed that they should be bought out. There was also at that stage, although it was subsequently dropped by amendment, an alternative claim to have the company wound up.

4

I think I should read the material parts of s.75, because that section has some bearing on what subsequently occurred. S.75 (1)provides that:

"Any member of a company may apply to the court by petition for an order under this section on the ground that the affairs of the company are being or have been conducted in a manner which is unfairly prejudicial to the interests of some part of the members (including at least himself) or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial".

5

I can omit subsection (2); subsections (3) and (4) are in the following terms:

"(3) If the court is satisfied that a petition under this section is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.

"(4) Without prejudice to the generality of subsection (3) above, an order under this section may" and then there are various things which can be done, terminating with "(d) provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly".

6

What happened in this case was that there appears to have been considerable correspondence between the parties with regard to the possibility that the respondents to the petition (the present appellants and the majority shareholders) should buy out the petitioners and there was some disagreement as to how the price of a purchase ought to be arrived at. In the ultimate, when the matter came before the Companies Court, as it did on 23rd November,it was dealt with by agreement and a consent order (although it is not expressed as such) was made by Mr. Justice Vinelott on 23rd November 1981.

7

The order recites the petition and the evidence which had been filed on it up to that point, and it went on in these terms:

"This court doth order pursuant to Section 75 of the Companies Act 1980 that the Respondents" (and then it names them) "do jointly and severally purchase the 3,900 shares" (it is common ground that that was a mistake for 7,800) "shares of the Company registered in the name of the Petitioners" (and then it names the petitioners) "at such price as the Court shall hereafter determine provided that such purchase may subject to the approval of this Court be effected by means of a reduction of the Share Capital of the Company.

"And it is ordered that on the question of the appropriate purchase price for the said Shares the evidence of the Petitioners be filed within 14 days of the date of this Order the evidence of the respondents be filed within 21 days thereafter discovery by exchange of lists do take place on or before the 11th January 1982 with inspection within 14 days thereafter and exchange of reports by experts within 28 days after inspection".

8

Then there is another paragraph as regards costs, which I need not read, which provides in effect that the respondents should pay the petitioners' costs of the petition down to and including the foot of the order. Then there is a final paragraph, as follows:

"Liberty to all parties to apply (1) for further and better particulars of the allegations in the affidavits (2) for directions as to the payment of the purchase price and interest if appropriate and (3) generally".

9

Following that order there was a substantial amount of evidence filed; experts were engaged and their reports were, as I understand it, duly exchanged and the matter came on for hearing before Mr.Justice Nourse. It appears to have proceeded, up to the date of the hearing before Mr. Justice Vinelott and at least for a month or so thereafter, with commendable celerity, but thereafter it adopted a somewhat molasses-like speed, and it finally terminated in the matter coming before the court on 25th November 1983. As I have already said, the learned judge, having considered all the evidence and the reports of the valuers, concluded in the way which I have read from p.436 of the report.

10

The basis of the learned judge's valuation are to be found in I think two passages from the judgment; they are at pp.429 and 430,and there is a further passage at p.431. At p.429 the learned judge says this:

"Although both sections 210"—which of course was the predecessor of s.75—"and 75 are silent on the point, it is axiomatic that a price fixed by the court must be fair. While that which is fair may often be generally predicated in regard to matters of common occurrence, it i can never be conclusively judged in regard to a particular case until the facts are known. The general observations which I will presently attempt in relation to a valuation of shares by the court under section 75 are therefore subject to that important reservation.

"Broadly speaking, shares in a small private company are acquired either by allotment on its incorporation or by transfer or devolution at some later date. In the first category it is a matter of common occurrence for a i company to be incorporated in order to acquire an existing business or to start a new one, and in either event for it to be a vehicle for the conduct of a business carried on by two or more shareholders which they could, had they wished, have carried on in partnership together. Although it has been pointed out on the high authority to which I will soon refer that the description may be confusing, it is often convenient and it is certainly usual to describe that kind of company as a quasi-partnership. In the second category, irrespective of the nature of the company, it is a matter of common occurrence for a shareholder to acquire shares from another at a price which is discounted because they represent a minority holding. It seems to me that some general observations can usefully be made in regard to each of these examples".

11

Then he quotes from the speech of Lord Wilberforce, the well-known passage in Re Westbourne Galleries Ltd, in (1973) Appeal Cases 360 at p.379 where, as he goes on,

"…..his Lordship, having observed that it is not enough that the company is a small one, or a private company, identifies three typical elements, one, or probably more, of which will characterise the company as a quasi-partnership. They are, first, an association formed or continued on the basis of a personal relationship involving mutual confidence; secondly, an agreement or understanding that all or some of the shareholders shall participate in the conduct of the business; and, thirdly, restrictions on share transfers. No doubt" (the learned...

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