Rock (Nominees) Ltd v RCO (Holdings) Plc (in Members Voluntary Liquidation)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Jonathan Parker,Sir Swinton Thomas,Lord Justice Potter |
| Judgment Date | 17 February 2004 |
| Neutral Citation | [2004] EWCA Civ 118 |
| Docket Number | Case No: A3 2003 1086 |
| Court | Court of Appeal (Civil Division) |
| Date | 17 February 2004 |
[2004] EWCA Civ 118
Lord Justice Potter
Lord Justice Jonathan Parker and
Sir Swinton Thomas
Case No: A3 2003 1086
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT
CHANCERY DIVISION (Mr Justice Peter Smith)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Mr Robin Potts QC and Mr Andrew Thornton (instructed by Messrs Allen & Overy) for the appellant
Mr Andreas Gledhill (instructed by Messrs CMS Cameron McKenna) for the first-named respondent
Mr Alan Steinfeld QC, Mr Pteversov and Miss Elizabeth Weaver (instructed by Messrs Travers Smith Braithwaite) for the remaining respondents
INTRODUCTION
This is an appeal by Rock (Nominees) Ltd ("Rock") against an order made by Peter Smith J on 29 April 2003 dismissing Rock's petition seeking relief under section 459 of the Companies Act 1985 against (1) RCO (Holdings) Ltd (in members' voluntary winding up) ("the Company"), (2) ISS Brentwood plc ("Brentwood"), and (3) ISS (UK) Ltd ("ISS UK") . Brentwood and ISS UK are members of the ISS Group ("ISS") . Joined collectively as fourth respondents to the petition, although no relief is sought against them, are Mr Jahangeer Ahmed, Mr Simon Cox and Mr David Openshaw. The Company has adopted a neutral role throughout, and accordingly references hereafter to the respondents are references to the respondents other than the Company.
On 24 November 2000 the Company sold its shareholding in its wholly-owned subsidiary RCO Group Ltd ("Group") to ISS UK for £30,117,784. At the date of the sale, ISS owned more than 96 per cent of the issued share capital of the Company, Rock owned a further 2.48 per cent, and a company called Rapid Reef Ltd ("Rapid Reef") a further 0.96 per cent. The directing mind behind Rock and Rapid Reef is and has at all material times been Lord Ashcroft. The individual respondents were at that date directors both of the Company and of ISS UK. I will refer to them collectively as "the Respondent Directors".
By its petition, Rock alleges that the sale was at an undervalue; that by their conduct in relation to the sale the Respondent Directors breached their fiduciary duties as directors of the Company; and that Rock has thereby been unfairly prejudiced as a member of the Company. On that basis it seeks relief under section 459.
The judge found that the Respondent Directors were "in a position of hopeless conflict" in relation to the sale, and that the manner in which the sale was conducted on behalf of the Company amounted to a breach of their fiduciary duties to the Company. However, he went on to find that the sale price was not an undervalue and that in consequence Rock had suffered no unfair prejudice. He accordingly dismissed the petition.
I granted permission to appeal on the papers on 2 June 2003.
By its grounds of appeal Rock challenges the judge's finding that the sale was not at an undervalue, contending that in making that finding the judge took into account irrelevant matters and that on the evidence before him he ought to have made a contrary finding.
By a Respondent's Notice, the respondents cross-appeal against the judge's finding of breach of fiduciary duty by the Respondent Directors.
The Company has served a Respondent's Notice directed only at the appropriate form of relief, should the appeal be allowed.
THE BACKGROUND FACTS
At all material times the Company carried on the business of supplying support services, principally in the healthcare and industrial sectors of the UK market. It provided a wide range of services including cleaning, catering, security, ground maintenance, waste management and car park maintenance. It carried on this business through two operating subsidiaries, which were wholly-owned by Group (which was in turn wholly-owned by the Company) .
In early 2000, ISS identified the Company as a potential target for a takeover. In February 2000 Mr Jens Oleson, a senior vice-president of ISS, prepared a report ("the February Report"), in which he evaluated the benefits to ISS UK of acquiring 100 per cent of the shares in the Company. The February Report refers in particular to substantial cost and other benefits which, according to the February Report, would result from an amalgamation of the business of the Company with that of ISS UK. These benefits were referred to in the February Report as 'synergies', and for that reason (there is no other) I will so refer to them hereafter.
The synergies identified in the February Report included substantial cost savings achievable by the sale of the head office and by staff savings at senior level, and the benefit of cross-selling opportunities. It is common ground that the synergies were personal to ISS UK, in the sense that they would not have been available, or available to anything like the same extent, to any other possible purchaser.
At the time of the February Report, the Company's shares were trading at 190.5p per share; their lowest level for some months. The February Report recommended a bid of between 247p and 266p per share (a premium of between 30 and 40 per cent on the current share price), concluding that "the window is open now".
In the light of the favourable views expressed in the February Report, it was decided that ISS should made a takeover bid for the Company. In the event the bid was made by Brentwood, which had been incorporated for the purpose. The initial offer, which was confirmed by letter dated 3 May 2000, was 247p per share.
The Company's board of directors (which did not at that stage include the Respondent Directors), after receiving advice from Dresdner Kleinwort Benson, recommended the bid for acceptance. According to Mr Raven, the Executive Chairman of the Company, whose evidence the judge accepted, the Company had had four previous approaches but, following 'due diligence', the highest offer it had received was 202p per share.
On 4 May 2000 Mr Raven, with other directors of the Company including Mr Scholes (the Deputy Chairman), met Lord Ashcroft at his request.
By 10 May 2000 the offer had increased to 247p per share. By 12 May 2000 ISS had acquired 29.7 per cent of the Company's issued share capital: just below the 30 per cent level at which a bid for all the shares would become mandatory under the City Takeover Code. The market price of the Company's shares was also increasing. By 16 May 2000 it had risen to 260p per share.
On 12 May 2000 Lord Ashcroft had a further meeting with Mr Scholes. Mr Scholes' evidence (which the judge accepted) was that at this meeting Lord Ashcroft made it clear that ISS would not succeed in acquiring 100 per cent of the Company, that he (Lord Ashcroft) was intending to buy into the Company and to retain his minority shareholding, and that the higher the offer by ISS the more likely was it that the Company would remain independent. Lord Ashcroft indicated that he was willing to do a deal at 272p per share, but he said that at that level Mr Scholes would have made him pay "£3M more than he need have done". Mr Scholes left the meeting with the clear impression that Lord Ashcroft would not be willing to pay more than 272p per share.
On the same day (12 May 2000) the Company was informed that Rapid Reef (which had earlier acquired 75,000 of the Company's shares) had acquired a further 525,000 shares, taking its total holding to 5.4 per cent of the Company's issued share capital. Following further acquisitions by Rapid Reef and BB Holdings Ltd (another of Lord Ashcroft's companies), by 23 May 2000 Rapid Reef and BB Holdings Ltd had together acquired an 11.3 per cent stake in the Company.
On 25 May 2000 ISS increased its offer to 280p per share. By that date, ISS had acquired 59.7 per cent of the Company's issued share capital.
On 26 May 2000 Rapid Reef and BB Holdings Ltd accepted the ISS offer and sold their shares in the Company to ISS at a price of 280p per share. Rock, however, retained its shares (the judge found that Rock's shareholding had been overlooked by ISS) .
On the same day Lord Ashcroft faxed Mr Schmidt of ISS, saying:
"Congratulations on RCO. As you know I've now given you a clear run. You needn't actually have paid up. We were also talking to the company but would not pay 280p – neither need you! But thanks for a small profit!! See you soon. Michael."
Lord Ashcroft also faxed Mr Raven in similar terms. The "small profit" to which Lord Ashcroft referred in his fax to Mr Schmidt amounted, it would appear, to some £250,000. The judge commented that "small" is a relative word. More importantly, the judge, observing that he had not had the advantage of hearing Lord Ashcroft give evidence about the above-mentioned faxes, concluded that absent any other explanation from Lord Ashcroft the only conclusion he could draw was that Lord Ashcroft took the view that 280p was not merely a fair price but a high price for ISS to pay for the Company's shares.
On 27 June 2000 the initial offer period expired. By that date, ISS had acquired 90.6 per cent of the Company's issued share capital. However, that was not enough to enable ISS to compel the remaining shareholders to sell their shares. Accordingly on 28 June 2000 ISS extended the offer until further notice.
On the same day (28 June 2000) Rapid Reef came back into the picture, buying 101,000 of the Company's shares (0.9 per cent of its issued share capital) .
By 8 September 2000 ISS had acquired 96.26 per cent of the Company's issued share capital. It...
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