Re Elgindata Ltd (No 2)

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLORD JUSTICE NOURSE,LORD JUSTICE STOCKER,LORD JUSTICE BELDAM
Judgment Date11 June 1992
Judgment citation (vLex)[1992] EWCA Civ J0611-10
Docket Number92/0571

[1992] EWCA Civ J0611-10

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 WARNER)

Royal Courts of Justice.

Before:

Lord Justice Nourse

Lord Justice Stocker

Lord Justice Beldam

92/0571

In The Matter of Elgindata Limited

And In The Matter of The Companies Act 1985

MR. TIMOTHY LLOYD Q.C. and MR. GORDON NURSE (instructed by Messrs. Shindler & Co.) appeared on behalf of the Appellants (Mr D. Rowland and Mrs. G. Rowland).

MR. DAVID CHIVERS (instructed by Messrs. Robbins Olivey) appeared on behalf of the Respondents (Mr. and Mrs. R. Purslow and Elgindate Ltd.)

LORD JUSTICE NOURSE
1

This is an appeal relating only to costs. It is brought with the leave of the judge below, which means that the restriction on an appeal imposed by section 18(1) (f) of the Supreme Court Act 1981 does not apply. However, we can only allow the appeal if, in making his order, the judge erred in principle or if there is some other ground on which a decision made by a judge in the exercise of his discretion can be reviewed: cf. Alltrans Express Ltd. v. CVA Holdings Ltd. [1984] 1 W.L.R. 394. In this instance we have had to investigate and identify the principles on which a successful party may be deprived of costs or may even be ordered to pay costs to the unsuccessful party.

2

The proceeding in which the order was made was a petition under section 459(1) of the Companies Act 1985 seeking relief from the court on the ground that the affairs of a small private company called Elgindata Ltd. ("the company") were being or had been conducted in a manner which was unfairly prejudicial to the interests of the petitioners, Mr. Derek Rowland and his wife, Mrs. Glenys Margaret Rowland, who are the joint holders of 33 per cent of its issued share capital. The respondents to the petition were the company itself and Mr. Richard John Purslow and his wife, Mrs. Christine Ann Purslow, who hold 56 per cent and 11 per cent respectively of the issued share capital. The trial of the petition before Mr. Justice Warner extended over the whole or some part of 43 days between 1st October and 29th November 1990. The judge's reserved judgment was delivered on 28th January 1991, when he made an order that Mr. Purslow should purchase the petitioners' shares at a price to be fixed by the court. On 5th July 1991, having heard argument as to the costs of the petition, the judge ordered (1) that Mrs. Purslow's costs should be paid by the petitioners, (2) that three quarters of Mr. Purslow's costs should be paid by the petitioners, (3) that one quarter of the petitioners' costs should be paid by Mr. Purslow and (4) that the costs of the company should be paid as to one quarter by Mr. Purslow and as to three quarters by the petitioners. The petitioners now appeal against the second, third and fourth of those orders.

3

It may be assumed that the costs of Mrs. Purslow and the company were trivial in amount, but those of the petitioners and Mr. Purslow have been estimated on a standard basis at around £120,000 and £200,000 respectively. If they were to be taxed in those amounts, the result would be that the petitioners, albeit that they succeeded in obtaining the relief which they sought, would have to bear total costs of £240,000 against a total of £80,000 borne by Mr. Purslow. The price to be paid by Mr. Purslow for the petitioners' shares has now been fixed by agreement at no more than £24,600. These figures are enough to show that, if the judge's orders for costs stand, the petitioners' victory will, as Lord Justice Beldam observed in argument, have become worse than pyrrhic. In purely monetary terms it will have proved to be an annihilating defeat. I should make it clear that none of the figures were before the judge when he gave his decision on costs and that they cannot have any influence on anything which we have to decide on this appeal. I refer to them only in order to demonstrate the great importance of our decision to the parties in the suit.

4

Mr. Justice Warner's reserved judgment on the petition is reported in [1991] B.C.L.C. 959. For present purposes it is unnecessary to give even a brief resume of the facts. I will refer to the judgment only so far as is necessary to understand the present dispute as to costs. At page 961D the judge stated the questions to be determined at that stage as being:

"(1) whether the affairs of the company have been conducted in a manner which is unfairly prejudicial to the interest of Mr and Mrs Rowland; (2) if so, whether the appropriate remedy is to order Mr Purslow, or Mr and Mrs Purslow to purchase their shares; and (3) if so, on what basis the price for the shares should be arrived at."

5

He added that it had been agreed between counsel that he should not at that stage hear the evidence of the valuers on the footing that that would be necessary only if he ordered a purchase.

6

At page 983 D-E the judge came to the petitioners' case on the first question. He divided their complaints of unfairly prejudicial conduct into four categories. He accepted that that was his own classification and not counsel's, but it is easy to see why he thought it necessary to make it. He expressed the four categories as follows:

"First, Mr Rowland had, after the execution of the 1986 agreements, if not a legal right, at least a legitimate expectation that he would be consulted about and participate in the policy-making decisions of the company, but in fact he was not consulted about those decisions and was excluded from participation in them.

Secondly, in certain specific instances the affairs of the company were conducted in a manner which was unfairly prejudicial to the interests of Mr and Mrs Rowland. Among those instances were the late payment of the dividend of £9,900, the failure to disclose the ASEM approach and Mr Purslow's service agreement.

Thirdly, Mr Purslow was neglectful of and incompetent in the management of the company's business.

Fourthly, Mr Purslow used assets of the company for his personal benefit and the benefit of his family and friends."

7

Shortly stated, the judge's conclusions as to the first three categories of complaints were as follows. As to the first, he thought that the petitioners' case was thin but not non-existent: see pages 989H and 1004B. As to the second, he thought it thinner still, but likewise not non-existent in so far as it rested on the late payment of the dividend: see page 1004B. As to the third, he found that there had been instances both of neglect of management and of bad management on the part of Mr. Purslow and he thought that that conduct was prejudicial to the petitioners. However, he held that it was not unfairly prejudicial to them. The conduct was of a kind of which Mr. Rowland took the risk when he invested in the company: see page 1000 G-H.

8

As to the fourth category of complaints, the judge was satisfied that Mr. Purslow had been unscrupulous in the use of the company's money, that he had indeed used it for his personal benefit and for the benefit of his family and friends and that his conduct in that respect had been unfairly prejudicial to the interests of the petitioners, albeit to an extent that was difficult to quantify: see page 1003I. Later he said that this conduct had resulted in a diminution in value of the petitioners' shares only to a very limited and unguantifiable extent. The reason why he had concluded that it was conduct unfairly prejudicial to the petitioners' interests was that it was inherently so: see pages 1004G and 1005E.

9

At page 1005F the judge started his consideration of the second question with these words:

"The petitioners' case has for the most part failed. Ought I none the less to order Mr Purslow, or Mr and Mrs Purslow, to purchase Mr and Mrs Rowland's shares? I have, after a great deal of hesitation, come to the conclusion that I should. The decisive factor to my mind is Mr Purslow's propensity for using the company's assets for his personal benefit and the benefit of his family and friends. I accept Mr Nurse's submission that, having regard to the evidence about that, it would be unfair to Mr and Mrs Rowland for the court to leave them 'locked in' as minority shareholders in the company."

10

Later the judge said that he thought, to use an expression that was more familiar in the Family Division, that it was a case for a clean break. He then held that the purchase order should be made against Mr. Purslow alone and not against Mr. and Mrs. Purslow jointly.

11

Lastly, the judge came to the third question. That gave rise to four sub-questions, which were mainly questions of law. I need not go into them in detail. Three were decided in favour of Mr. Purslow and one in favour of the petitioners. Of those decided in favour of Mr. Purslow the most important was that the shares should be valued as at the date of the order and not at some earlier date, when they would without doubt have been considerably more valuable.

12

I now come to Mr. Justice Warner's judgment on costs. Having referred to the general rule that a successful plaintiff is entitled to his costs notwithstanding that he may have failed on some issues, he said that he had to look at the realities of the case. The essence of the petitioners' case had been that there had been unfairly prejudicial conduct in all four categories which had resulted in a substantial diminution in value of their shares, entitling them to be bought out at their value before that diminution had occurred. In the event that case had failed and what had succeeded was a case of a different magnitude and a different nature. There had been unfairly prejudicial conduct in the fourth...

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