Smith (Geoffrey) v Henniker-Major & Company
| Jurisdiction | England & Wales |
| Judge | Lord Justice Robert Walker,Lord Justice Carnwath,Lord Justice Schiemann |
| Judgment Date | 22 July 2002 |
| Neutral Citation | [2002] EWCA Civ 762 |
| Docket Number | Case No: A3/2001/2373 |
| Court | Court of Appeal (Civil Division) |
| Date | 22 July 2002 |
[2002] EWCA Civ 762
Lord Justice Schiemann
Lord Justice Robert Walker and
Lord Justice Carnwath
Case No: A3/2001/2373
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (RIMER J)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Mr David Mabb QC and Mr Julian Gun Cuninghame (instructed by Fosters) for the appellant
Mr Christopher Symons QC and Mr Daniel Gerrans (instructed by Mills & Reeve) for the respondent
Introduction
The appeal and the renewed application before the court raise issues of some general importance in the fields of company law, agency and the amendment of pleadings. The appellant is Mr Geoffrey Smith, a businessman with an interest in property development. The respondent Henniker-Major & Co ("the solicitors") were a firm of solicitors based in Ipswich. The firm has since been dissolved and for practical purposes the respondent is the former senior partner, Mr Mark Henniker-Major.
The appeal is from an order of Rimer J made in the Chancery Division on 17 October 2001. The order refused Mr Smith permission to amend his particulars of claim and dismissed his action under CPR Part 24 as having no real prospect of success.
The judge refused permission to appeal but Arden LJ gave permission to appeal on two grounds (which can conveniently be called the section 35A issue and the ratification issue) and Mr Smith has renewed his application for permission on the third ground for which Arden LJ did not give permission (the amendment issue). There is a respondent's notice which raises three grounds, not relied on by the judge, for affirming his order. One of these is relevant to the appeal on the ratification issue; one is relevant to the renewed application on the amendment issue; and one will (if it is still material) have to be the subject of further argument on another occasion (that is in accordance with directions given by Chadwick LJ on 27 March 2002; the reserved issues include the issue of Mr Smith's good faith).
The facts
At the beginning of his judgment the judge rightly commented that the case had a considerable background, but that for his purposes it was not necessary to go into much of it. That is so in this court also. For present purposes the essential issues are whether, how and when Mr Smith personally acquired rights of action against the solicitors from a company called Saxon Petroleum Developments Ltd ("SPDL"), and whether he should be permitted to amend his pleaded case if he needs to do so.
The case set out in the particulars of claim is that in 1992 a partnership called Peter McCall Associates was trading from premises in Ipswich. The partners were Mr Trevor Bickers and Mr Peter McCall. Their business was identifying sites on or near trunk roads which had potential for development as filling stations, cafes or motels, and arranging deals for the sites of that sort. The solicitors acted for Mr Bickers and Mr McCall.
In about October 1992 Mr Christopher Meynell, a financial consultant, was introduced to Mr Bickers and Mr McCall, and he in turn introduced them to Mr Smith. The outcome was the formation (on 23 April 1993) of SPDL as a joint venture company whose shares were (under a shareholders' agreement dated 7 May 1993) to be held as to 30 per cent by Mr Smith, 33 per cent each by Mr Bickers and Mr McCall, and 4 per cent by Mr Meynell. All four were appointed as directors.
By the shareholders' agreement Mr Bickers and Mr McCall were at once to transfer to SPDL all their "options agreements plans and other relevant information or documentation relating to petrol station sites and their acquisition and development" and there were provisions prohibiting competition and the disclosure of confidential information.
Mr Smith's case was that the first deal to be carried out by SPDL related to a site at the junction of the A19 and the A689 at Wolviston, Cleveland, but that SPDL was deprived of the benefit of that deal by sharp practice on the part of Mr Bickers and Mr McCall, who made use of another company called Saxon Petroleum Ltd ("SPL") of which Mr Smith was neither a director nor a shareholder. Mr Smith's case was that the solicitors wrongfully accepted a retainer on behalf of SPL when already instructed by SPDL, and that they were in breach of contractual, tortious and fiduciary duties to SPDL. The individuals said to be implicated were Mr Henniker-Major and an unqualified employee of his firm, Mr Terry Bright.
In December 1993 Mr Smith brought proceedings under section 459 of the Companies Act 1985 in the Ipswich County Court. The respondents were SPDL, Mr McCall, Mr Bickers and Mr Meynell. On 7 April 1995 His Honour Judge Bromley QC gave a first judgment in favour of Mr Smith and said that Mr McCall and Mr Bickers had been in gross breach of their fiduciary duties to SPDL. The proceedings continued for some time but it is unnecessary to go further into the details.
That is the background to the issues on this appeal. The facts of immediate relevance are concerned with Mr Smith's efforts to see SPDL's rights of action against the solicitors pursued and brought to judgment. By August 1998 Mr Smith and Mr McCall were the only directors of SPDL. The judge's account of what happened is not challenged:
"Mr Smith convened a board meeting of SPDL for 12 August 1998. He gave notice of it to Mr McCall by a letter of 9 August 1998. Mr McCall replied on 10 August, saying that he was unable to attend the meeting, and nor did he. The meeting was attended by Mr Smith alone. Its minutes record that he was authorised to sign two assignments which were before the meeting. One of them was that with which this action is concerned, namely an assignment of certain of SPDL's alleged claims to Mr Smith himself."
The assignment is a typewritten document with the date (12 August 1999) in typescript but it is common ground that '1999' must be a mistake and that it was signed by Mr Smith on 14 August 1998. The parties are SPDL, described as the Assignor, and Mr Smith, described as the Assignee. The text starts with the heading 'WHEREAS' and this is followed by eight numbered clauses which do not clearly distinguish between recitals and operative provisions:
"1 The Assignor considers themselves to be rightful in taking proceedings for damages for negligence and/or breach of contract against Henniker-Major & Co, the Assignors appointed Company Solicitors.
2 The Assignor Company is based in England.
3 The Assignee is desirous of acquiring all of the rights subsisting in the above referred to rights, and the Assignor has agreed to assign all the said rights to the Assignee accordingly.
4 The Assignee indemnifies the Assignor against any costs of such pursuit of the Rights afforded by the said Court Order.
5 The Assignee is the only remaining Creditor of the Assignor Company.
6 The consideration for the aforementioned assignment, shall be an undertaking that whilst the pursuit of any entitlements against Messrs Henniker-Major & Co, the Assignee shall hold off any action to recover the acknowledged indebtedness sum due to him, in the order of £45,000 (plus any interest due) until all efforts to recover this sum elsewhere are exhausted.
7 This Assignment was approved and agreed at a properly convened meeting of the Board of Directors of the Assignor Company held on the 12 th of August 1998 and held at the Registered Office.
8 The signatory below is Chairman of the Board of Directors of the Assignor Company and the Company will be bound by the terms of this agreement save by prior mutual consent between the Assignor and the Assignee."
The assignment was signed (once) by Mr Smith as director and chairman, and dated in manuscript '14–8-98'.
Clause 5 recited that Mr Smith was the only remaining creditor of SPDL. Before the judge Mr Smith accepted that that was incorrect and that SPDL had liabilities of about £80,000 in all, including about £17,000 owed to Mr Meynell. Mr Smith said that the other liabilities were to him and his wife, Mrs Sharon Smith. The solicitors did not accept that there were no other creditors. Mr and Mrs Smith had in 1997 sold their house at Stowmarket in order to pay off their liabilities to Barclays Bank plc, including liabilities as guarantors of SPDL. The sum described as "of the order of £45,000"represented a sum of £40,438.88 paid by Mr and Mrs Smith as guarantors together with an estimated sum of interest.
It is common ground that Mr Smith could not validly hold a board meeting on his own because (under regulation 89 of Table A, which applied to SPDL) the quorum for a board meeting was two directors. (Mr Smith's written evidence, on which he was not cross-examined, was that he misunderstood the articles and believed that he had power to act on his own.) That has given rise to the first issue on the appeal, as to the meaning and effect of section 35A of the Companies Act 1985. Believing himself to have acquired SPDL's rights of action, Mr Smith issued his claim form in these proceedings on 28 September 1999. The proceedings were commenced in the Queen's Bench Division but were transferred to the Chancery Division.
In their defence the solicitors denied any breach of duty. They also raised some further matters by way of defence, including (in paragraph 24) the contention that the board meeting on 12 August 1998 was inquorate and that the assignment of 14 August 1998 ("the 1998 assignment") was ineffective. A further point taken was that in any event it did not assign any cause of action for breach of fiduciary duty.
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