Robert Chaston v Swp Group Plc
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr Justice Davis,Mr Justice Davis |
| Judgment Date | 06 April 2002 |
| Neutral Citation | [2002] EWHC 521 (QB) |
| Docket Number | Case No: 01/TLQ/0570 |
| Court | Queen's Bench Division |
| Date | 06 April 2002 |
[2002] EWHC 521 (QB)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Davis
Case No: 01/TLQ/0570
Mr C Kinsky (instructed by Lyons Davidson) for the Claimant
Mr D Cavender (instructed by Theodore Goddard) for the Defendant
Approved Judgment
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.
Introduction
The Claimant, Mr Robert Chaston ("Mr Chaston"), issued proceedings against the Defendant, SWP Group Plc ("SWP"), which is a company quoted on the London Stock Exchange, on 7 th February 2000. By his claim form, the proceedings initially being commenced in the Bristol County Court, he claimed the sum of £56,985 (and interest) alleged to be due to him under a written Sale and Purchase Agreement ("the Agreement") dated the 11 th December 1997 and made between Mr Chaston and others as vendors and SWP as purchaser. Judgement was entered in favour of Mr Chaston on the 27 th March 2001; but a stay was ordered pending the disposal of a counterclaim, by then formulated by Amended Defence and Counterclaim dated 15 th March 2001, raised by SWP (and subsequently reamended). The counterclaim is for a sum in excess of £1million. It is, in its essentials, based on allegations of fraudulent or other misrepresentations said to have been made by Mr Chaston and which allegedly induced SWP to enter into and complete the Agreement; on alleged breaches of warranty; and on alleged breach of fiduciary duty on the part of Mr Chaston as director of a company then known as Dunstable Rubber Company Limited ("DRC"). The trial before me has been concerned solely with this counterclaim. At the trial, Mr Chaston was represented by Mr Kinsky of Counsel and SWP by Mr Cavender of Counsel.
The background facts, as I find them to be, are as follows.
The DRC Group
Mr Chaston is a qualified solicitor. After working abroad for some years, he joined, and then became a partner in, the firm of Nabarro Nathanson, specialising in company and commercial matters. In around 1979 he left that firm with a view to engaging himself in business opportunities. To this end, he had acquired in 1978 a shareholding in Dunstable Rubber Company Holdings Limited ("DRCH"), the other principal shareholder being Mr Murphy. DRCH had a number of subsidiary companies, including DRC. The group's activities were in the building construction materials business. Thereafter the group prospered.
In 1988 the group acquired a company called Charcoal Cloth Limited which produced filtration materials. In 1991 there was a demerger and Mr Chaston parted company with Mr Murphy, Mr Murphy taking with him, as it were, Charcoal Cloth Limited. The demerger involved a reconstruction with substantial costs and balancing charges falling on DRCH; and from that time on the DRC Group seems to have been undercapitalised and under at least some degree of financial pressure. Nevertheless, in each year turnover for the group continued to increase.
In 1996 one of the companies in the DRC Group, DRC Satellite Limited (which had only recently been formed, with a view to acquiring for the sum of £900,000 another company operating from premises at Soham near Newmarket, with which DRC had had substantial dealings and which had got into financial difficulties) went into administrative receivership. Substantial sums had been expended, fruitlessly, in seeking to rescue that company. In addition, a number of unpaid creditors were aggrieved at the failure of DRC Satellite; at least one, Montel, thereafter declined to provide materials to the other DRC companies without being paid in advance.
At the beginning of 1997, the Group's premises at Dunstable, near Luton, comprised four light industrial units and ancillary offices and parking, which were leased to DRC. By the end of 1996 and early part of 1997 the Group had acquired the premises at Soham near Newmarket and other assets from the receivers of DRC Satellite at a total cost of several hundreds of thousands of pounds: the acquisitions variously included the freehold property, assets and plant of the business operated there. The principal activities of DRC were by this time as follows.
5.1 First there were manufactured, at the Dunstable premises weather proof roofing products using a base synthetic rubber polymer called Hypalon, supplying both UK and overseas markets. This had been DRC's main activity for a number of years: the evidence indicates that by 1997 the market for these products was becoming mature and competition was fierce. Moreover DRC's plant was elderly and could only produce Hypalon in a limited range of widths on some products. In addition DRC manufactured other products. It also had an established market in the supply of customised roofings for portable buildings, supplying over 65% of the UK market. This market was perceived to have relatively little room for growth: but it provided regular income for DRC and, in contrast to its other products, did not depend on special projects for the generation of orders.
5.2 A second division within the DRC group was its Acid Resistant Linings Division. This was concentrated on advising, designing and providing to the market acid resistant materials for lining purposes to provide protection from corrosive materials. The division was headed by Mr Khedeyer, who was based in South Wales. This too was a project driven business: that is to say, a business dependent on requirements for specific projects undertaken by clients.
5.3 The third principal division of DRC was that at Soham. That produced a variety of plastic sheet materials. In particular it was hoped that the plant at Soham could be expanded to produce new products manufactured from a new plastic based material called Flexible Polypropylene Alloy ("FPA") and considerable hopes were held for FPA products.
5.4 With the exception of the Portables Division, there generally was not a regular and steady supply of orders. Rather business depended on orders coming for specific products based on specific requirements of clients for particular projects. The lead-time, even for the portables business, between orders and sales was, on average, only about two weeks.
At this time, the share capital structure of DRCH was complex. It is sufficient to say that the vast majority of the shares were owned by Mr Chaston and a Swiss trust which was, in effect, a Chaston family trust. There had also been issued £300,000 Redeemable Cumulative Preference shares of £1 each to Mrs J. O'Neill, the wife of a technical consultant to the DRC Group (Dr O'Neill, having formerly himself owned the predecessor to DRC Satellite), who had assisted in financing the initial acquisition by DRC Satellite; and Mr Chaston had given a personal guarantee to Mrs O'Neill in respect of the redemption of those preference shares at par.
The directors of DRCH and DRC at this time were Mr Chaston himself and Mr Frank Keaney. Mr Chaston was also Chairman. Mr Chaston's role as director was non-executive: he played little part in the day to day operation and management of DRC and, indeed, based himself at his home near Marlborough, where he had his office. Nevertheless Mr Chaston took an informed and keen interest in the affairs of the group, periodically visiting the Dunstable premises and being fully conversant with its principal business activities and with its finances and being effectively in charge of its strategic direction. He took a particularly close interest in the Acid Resistant Linings Division. The managing director of DRC was Mr Keaney, who had been with DRC since 1979 and who was very experienced in the building materials industry. As to other management, Mr Khedeyer was a qualified chemical engineer, who had joined DRC in 1994 and who had extensive business contacts internationally. The financial controller and company secretary was Mr Ansell, a chartered accountant. He had been with DRC since 1987. By 1997 he was in poor health and there were absences from the office on his part for that reason during 1997. The technical sales manager was Mr Grkinic, a qualified mechanical engineer who had joined DRC in 1987; the commercial manager at Dunstable was Mr Sablone who had joined DRC in 1989; the Sales and Administration Manager at Dunstable for the Portables Division was Mrs Capp, who had joined DRC in 1978; the works manager at Dunstable was Mr Stringfellow, who also had joined DRC in 1978; and the production manager at Soham was Mrs Burgess, who joined DRC when it acquired the plant and premises there in 1996 and who had previously held that post in the predecessor company run by Dr O'Neill for eight years. In total there were some 38 factory and administrative employees: sub-contract labour was retained (especially by the Acid Resistant Linings Division) as needed. It can be seen that the group thus had experienced and loyal management, virtually all of whom had been with the group for considerable periods of time. At the same time the evidence showed that not only was there no Marketing Director or Finance Director but also that the financial systems, although the records were properly and reliably kept by Mr Ansell, were somewhat antiquated. They had not been computerised and the provision of financial data was not always up to date or promptly available; and while monthly management accounts were regularly prepared, they were not usually available until at least towards the end of the second half of the following month.
By the beginning of 1997 the financial pressures on the DRC Group were becoming very great indeed. To a considerable extent this was caused by the previous...
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