Roadchef (Employee Benefits Trustees) Ltd v Timothy Ingram Hill and Another
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Proudman |
| Judgment Date | 29 January 2014 |
| Neutral Citation | [2014] EWHC 109 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC11C00511 |
| Date | 29 January 2014 |
[2014] EWHC 109 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Proudman
Case No: HC11C00511
Nigel Jones QC, PJ Kirby QC and Emily Betts (instructed by Capital Law LLP) for the Claimant
Michael Brindle QC and Giles Wheeler (instructed by DAC Beachcroft LLP) for the Defendants
Approved Judgment
Hearing dates: 19/20/21/24/25/26/27/28/June, 02/03/04/July, 07/08/09 October 2013
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
These proceedings concern a transfer of shares in Roadchef plc ("Roadchef") between two employee benefit trusts, "EBT1" and "EBT2", created on 9 December 1986 and 5 July 1988 respectively. Roadchef is the holding company of a group which operated motorway service areas.
The claimant ("REBTL"), a subsidiary of Roadchef, was and is the corporate trustee of EBT1 and the defendants (described as the second defendants and including the first defendant, Mr Ingram Hill,) are the current trustees of EBT2. The claim concerns the circumstances in which the second defendants granted options over the shares to Mr Ingram Hill, who was from 1986 the managing director and from 1988 also the chairman and chief executive of Roadchef.
Mr Jones QC, Mr Kirby QC and Miss Betts appeared before me for REBTL and Mr Brindle QC and Mr Wheeler for the defendants.
At the material times, EBT1 was concerned in the operation of an Employee Share Ownership Plan, or ESOP, for the benefit of Roadchef employees. EBT2 was a trust used to provide share incentives to Roadchef's senior management.
The principal claims in the action are that a transfer of shares between EBT1 and EBT2 was void or voidable or, alternatively, was made by REBTL in breach of trust or breach of fiduciary duty owed to the beneficiaries of EBT1 and that Mr Ingram Hill dishonestly assisted in the breach, subsequently receiving the shares in the knowledge that they had been transferred in such breach. The principal claim is that Mr Ingram Hill holds all the profit he made as trustee for REBTL or alternatively is liable to REBTL in damages or is accountable for the profit.
I say the principal claim because there are several inter-related claims, which I found confusing and have therefore attempted to summarise in tabular form in the schedule annexed to this judgment. However I agree with Mr Brindle that the case largely stands or falls on the facts. I say largely because, although at first Mr Brindle sought to persuade me otherwise, there is a substantial trust question, irrespective of any alleged wrongdoing, as to whether there could have been a valid transfer from EBT1 to EBT2 in exercise of the power said to have been used.
REBTL's factual allegation is that Mr Ingram Hill made certain deliberate and pre-meditated arrangements, as follows:
• He arranged for a company of which he was a director to be appointed as the trustee of EBT2.
• He arranged for the EBT2 trust deed to be amended so that he could benefit while remaining a director and the prohibition against directors benefiting did not apply to him.
• He arranged for REBTL to be appointed as trustee of EBT1 and then secured his appointment as director of REBTL.
• He persuaded REBTL pursuant to a number of alleged representations to resolve to transfer all the unappropriated shares then owned by EBT1 to EBT2.
• He then secured the grant to himself by EBT2 of share options over the shareholding.
• He exercised the options and sold the shares as part of the sale of Roadchef at the price of 131p per share, thus making a profit from the sale of some £26.8m.
Background facts
In 1983 there was a management buy-out ("MBO") of Roadchef. The then managing director, Mr Gee, was the prime mover behind the MBO and he and his family acquired a 70% holding in Roadchef as a result. A Mr Edgington, the company accountant but not then a director, acquired 2% and Mr Ingram Hill, again not then a director, acquired 3%. After the MBO Mr Ingram Hill was appointed operations director of Roadchef's operating company.
Mr Gee wanted to spread ownership among his workers and was keen that there should be a share option scheme under which some 20% of Roadchef's shares would be employee owned. In early 1986 Mr Gee, Mr Edgington and Mr Ingram Hill flew to the United States to investigate share ownership schemes as there was at that date no comparable scheme in the United Kingdom. Very soon after their return Mr Gee died. Mr Ingram Hill succeeded him as Roadchef's managing director. Mr Edgington was later appointed finance director and company secretary. They both continued the search for an appropriate ESOP scheme.
Later that year an ESOP was established pursuant to a resolution by Roadchef on 10 December 1986. The previous day EBT1 was constituted by a trust deed. There were three original trustees, Mr Ingram Hill, Mr Cyril Aydon and New Bridge Street Trustees Limited ("NBST") and two new trustees, Ms June Latham and Mr David Basnett (who died in January 1989), were appointed the following February.
New Bridge Street Consultants Limited ("NBSC") was a wholly owned subsidiary of Clifford Chance, solicitors, and its role was to advise Roadchef about the ESOP. The advice given was primarily practical commercial advice about its operation, but it also included legal advice although on tricky legal questions advice would be sought from Clifford Chance. NBST, a related company, was a professional trustee. As Mr David Tankel, a consultant with NBSC, said in oral evidence,
"…at the beginning [we]…had a dual function. We were advising the company as [NBSC] and then we sat on this trust as a representative of [NBST]. So it was quite hard to disentangle it [the borderline between the two companies] in practice, yes."
It was also hard to determine precisely who was being advised in what capacity. Mr Ingram Hill said that advice from Mr Tankel was received in his capacity as a member of Roadchef's Board, although he said that he knew that Mr Tankel would also report to the EBT1 Trustees. There was a similar difficulty with advice from 1993 onwards from Mr John Hurdley of Beachcroft Stanley. Mr Ingram Hill's evidence was that Mr Hurdley was never Mr Ingram Hill's personal solicitor although that is possibly how Mr Hurdley would have seen his own role. Thus Mr Ingram Hill said that instructions given to increase his shareholding were instructions given on behalf of Roadchef although the matter had not been discussed at all with Roadchef's director Mr Edgington. Mr Hurdley's role is blurred in this regard. He did not give evidence and his own view of his function is not therefore known.
A Share Participation Scheme ("the SPS") was constituted by a Trust Deed dated 18 December 1986. Again, Mr Ingram Hill was a trustee, this time not only with Mr Aydon and NBST but also with Ms June Latham, Mr Michael Stunnell and Lord Cocks. The SPS was financed by Unity Trust Bank ("UTB") and had the backing and cooperation of Roadchef's principal Trade Union, GMB, of whom Ms Latham had been a shop steward for some 20 years.
Mr Gee's widow agreed to sell some of the family shares to establish the ESOP and it was set up with an initial shareholding of 7%, being 2.9% from Mrs Gee and 4.1% from others. Two trusts were created to operate the ESOP: namely EBT1 and the SPS which latter was approved by HMRC in accordance with Part I of Schedule 9 to the Finance Act 1978 with the consequence that Roadchef's financial contributions to it were tax deductible.
The scheme involved an initial 12.25% of the equity of Roadchef being reserved among the staff equally. After a number of years of service, staff were entitled to an allocation of shares for each year of service. To minimise tax, staff who left Roadchef had to keep their shares for five years but they could then be sold to the ESOP which would buy them back for redistribution. Prior to allocation shares were held in EBT1.
The structure was as follows. EBT1 borrowed money from UTB to buy shares in Roadchef. The trustees of EBT1 entered into a charge in favour of UTB by way of memorandum of deposit of the shares; the charge was released in so far as required to transfer shares and to repay the loan. The charge was guaranteed by Roadchef. Every year Roadchef would make (tax deductible) financial contributions to the SPS which would use the money to buy shares from EBT1. Those shares were then appropriated in accordance with directions from Roadchef's board of directors to all eligible employees of Roadchef. EBT1 would use the money it received from the SPS to reduce its loan obligation to UTB. The number of shares purchased by the SPS depended on the funds available from Roadchef and the value per share agreed with HMRC.
On 5 April 1988 Mr Ingram Hill resigned as a trustee both of EBT1 and the SPS. The circumstances of his resignation are disputed, REBTL saying (and the defendants denying) that it was because he would be unable to benefit while he remained a trustee. The reason advanced by REBTL is that owing to the number of shares Mr Ingram Hill was about to receive from Mrs Gee he was concerned that he would be entitled to more than 25% of the Roadchef shareholding if the shares he held as trustee were taken into account.
That summer the Roadchef Board (of which Mr Ingram Hill had become Chairman and Chief Executive) resolved to establish EBT2 with a view to its use for senior...
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