Saxon Woods Investments v Costa and Others
| Jurisdiction | England & Wales |
| Judge | Mr. Simon Gleeson |
| Judgment Date | 03 May 2024 |
| Neutral Citation | [2024] EWHC 1056 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No: CR-2021-000718 |
[2024] EWHC 1056 (Ch)
Mr. Simon Gleeson
(sitting as a Judge of the Chancery Division)
Claim No: CR-2021-000718
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF SPRING MEDIA INVESTMENTS LIMITED AND IN THE MATTER OF THE COMPANIES ACT 2006
The Rolls Building
7 Rolls Buildings
Fetter Ln
London EC4A 1NL
Mr. Edward Davies KC and Mr. Jack Rivett (instructed by Stephenson Harwood LLP) appeared on behalf of the Petitioner
Mr. Richard Hill KC and Lara Hassell-Hart (instructed by DLA Piper) appeared on behalf of the First Respondent.
THE SECOND TO EIGHTH RESPONDENTS were not present and were not represented
APPROVED JUDGMENT
This Judgment addresses the large number of issues that were raised before me in the further hearing in this matter on issues consequent upon my Judgment of 22 February 2024. Both the Petitioner and the First Respondent seek to appeal against certain (different) aspects of my Judgement in this matter, and there are a number of other issues that are required to be dealt with. I address these in the order set out below. References marked J. in square brackets are to the relevant paragraph of my Judgment.
(1) Directions for the trial of issues of quantum (the “Quantum Trial”).
(2) Leave to appeal – general.
(3) The Petitioner's application for permission to appeal.
(4) The First Respondent's application for leave to appeal.
(5) The costs of the Liability Trial.
(6) Injunctive relief in respect of the misuse of Company funds and its costs.
(7) The form of the order.
The Facts
The basic facts, as set out in my Judgment, are that the Company was originally wholly owned by Mr Loy (his shares have now been transferred to the Petitioner to hold as nominee for – I understand — members of his family)[J.17]. His ownership was diluted through a series of capital raisings, each of which involved the making of a written shareholders agreement (SHA) between the company and its shareholders [J.22]. By the time of the last of these, the Petitioner's holding had fallen to 22.33% of the Company [J.24]. The other investors were financial investors seeking a short-to-medium term return, and no one investor had overall control [J.19 and 22]. The SHA required all parties to “… work together in good faith towards an Exit [defined as a sale of all or substantially all of the shares in the Company] no later than 31 December 2019.” and to “…give good faith consideration to any opportunities for an Exit [arising before that date]” [J.10 and 11].
No single investor had overall voting control of the Company, but the First Respondent, Mr Costa, had brought in a number of the investors, and they were inclined to leave control of the running of the company to him in his capacity as chairman [J. 200 and 225]. Mr Costa believed that the Company would raise a better price if its sale were delayed beyond 31 December 2019 [J. 208]. He therefore used his position as the director responsible for the conduct of the sale process to delay that process, and to rebuff offers received during the period [J. 208]. As a result of his conduct, the Company breached its obligations under the SHA [J.200]. The Petitioner, who throughout this period had been clamouring for the company to be sold by the specified deadline, alleges that it thereby suffered unfair prejudice within the meaning of s.994 of the Companies Act 2006.
I do not think that there is any doubt that the affairs of the Company were conducted in a way which was unfair to the Petitioner, and that Mr Costa was responsible for that state of affairs. However, there is real doubt as to whether the result of Mr Costa's conduct has caused any significant prejudice to the Petitioner. The reason for this is that it seems to have been agreed by all of the investors in the company (including the Petitioner) that an offer received below a certain level (I have found $75m net of debt) would not have been accepted in any event [J.258]. There was (pursuant to the case management order) no evidence as to valuation before me at trial, but it was clear from the expert evidence submitted that the Petitioner believed that, given the state of the company at the relevant period, any offer received would have been in excess of that amount, and the First Respondent believed that, for the same reason, any offer received would have been below it. There is to be a separate trial on issues of quantum (the “Quantum Trial”) in order to establish what the likely level of a binding offer received for the Company at that time would have been.
If the outcome of the Quantum Trial is that, even if Mr Costa had performed his obligations properly, the resulting offer would have been at a level which the shareholders (including the Petitioner) would have rejected, then it is impossible to say that the Petitioner has suffered any substantial prejudice – the prejudice of which he complains, and which was the platform for his case at trial, was that he had lost the financial benefit of the potential sale. The position is therefore that in order to show non-trivial prejudice, the Petitioner must show that the result of the unfair behaviour was that he lost the opportunity to exit the Company.
(1) Directions for the Quantum Trial
The question to be determined at the Quantum Trial is: “at what level an offeror who had done proper due diligence on the Company would have pitched their final binding offer” [J.256]. If it is concluded at the Quantum Trial that a final offer of more than $75m net of debt would have been received for the Company, then the First Respondent must purchase the Petitioner's shares at the price of 22.33% of that valuation [J.263].
This question is to be answered on the basis of expert evidence, with each party being permitted to adduce an expert in the field of share valuation with instructions to value the entire issued share capital by reference to what a buyer with knowledge of all material facts would have been prepared to pay to the existing shareholders for 100% of the issued share capital at or before the 31st December 2019.
This process must be conducted on a somewhat abstract basis. It is not possible to form any clear picture of what the position might have been had Mr Costa and the Company acted properly, or which bidders might have been attracted, on what basis, or when. It is no part of the hearing to determine whether any specific bidder would have bid or not – with one partial exception, it should therefore begin with a purely hypothetical bidder, and enquire what the level of any final binding offer following due diligence would have been.
Any exercise establishing the likely market value of a company must pay close attention to the factual position in which that company finds itself. In particular, because of the disclosure which has already been made, in this case the experts will have access to much fuller information than an actual bidder would have had. I do not think that that fact advantages or disadvantages either side.
The only partial exception to this is that a conditional offer was in fact received from one bidder – Metric. It will therefore be necessary for the Quantum Trial to consider what the specific position of Metric would have been. However, it would be an irrelevant distraction to conduct a factual enquiry as to what Metric would have bid — the enquiry should be solely a valuation enquiry as to what it might have bid. It is, of course, entirely open to the Quantum Trial to conclude that such a bid might not have been made at the minimum required level or at all.
The First Respondent argued that the terms of the order should make reference to the onset of Covid. In the trial before me, both experts agreed that if a final offer had been received before 31 December 2019, it would have been capable of completion before the onset of the Covid lockdowns. This point should not be reopened. However, it is clearly true that if the conclusion of the experts is that the best offer which would have been made would necessarily have had some characteristic which delayed its completion beyond the onset of the Covid lockdowns, the possibility of completion is a point which the Quantum Trial may have to consider, since an offer which, in the circumstances, could not be completed, would not be an offer for this purpose. I cannot see on the facts that I have considered that this is a probable issue, but the Quantum Trial may have to consider it.
The Court has already determined that these proceedings are suitable for costs management (see paragraph 13 of the order dated 9th December 2022 made by Deputy Insolvency and Companies Court Judge Agnello K.C.). However, the parties' costs budgets only cover the costs up to and including the hearing on consequential matters. The parties will therefore need to prepare fresh budgets for the purposes of the Quantum Trial.
Both parties agree that a CMC should be listed, with a time estimate of one day, to deal with matters pertaining to the second stage trial.
The...
To continue reading
Request your trial