Stubbins Marketing Ltd v Stubbins Food Partnerships Ltd ((in Administration))
| Jurisdiction | England & Wales |
| Judge | Mr Justice Trower |
| Judgment Date | 19 May 2020 |
| Neutral Citation | [2020] EWHC 1266 (Ch) |
| Date | 19 May 2020 |
| Docket Number | Case No: HC-2016-003069 |
| Court | Chancery Division |
[2020] EWHC 1266 (Ch)
Mr Justice Trower
Case No: HC-2016-003069
Case No: HC-2017-002087
IN THE HIGH COURT OF JUSTICE
IN THE BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Royal Courts of Justice
7 Rolls Building, Fetter Lane
London, EC4A 1NL
Thomas Roe QC and Clara Johnson instructed by Duffield Harrison LLP for the Claimant
Lesley Anderson QC instructed by Rae Nemazee LLP for the Third Defendant and by Gary Summers as licensed litigator for the Fourth and Fifth Defendants
Hearing dates: 5–8 November 2019, 11–15 November 2019, 18–22 November 2019, 25–26 November 2019 and 2–4 December 2019
Supplemental Written Submissions: 21 January 2020
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
In these proceedings Stubbins Marketing Limited (“SML”) seeks damages and/or equitable compensation pursuant to section 178(1) of the Companies Act 2006 (the “2006 Act”) and an indemnity pursuant to section 195(3)(b) of the 2006 Act against three of its former directors (or in the case of one of them his estate). SML also seeks certain ancillary relief including an account of profits, rescission of a debenture and certain declarations. Any entitlement to that ancillary relief flows from the circumstances in which SML is entitled to damages and/or an indemnity.
The claim for damages relates to a number of different breaches of duty said to have been committed by those directors at various times between 2013 and 2016. The claim that they are liable to indemnify SML arises out of a substantial property transaction, by which SML sold a major part of its assets to companies controlled by those defendants on 1 April 2016. It is also pleaded that, by procuring SML to enter into that transaction, those directors committed breaches of duty.
SML was incorporated in 1987 to take over a Lea Valley-based market gardening business carried on by three siblings, Paolina Turone (“Pauline”), Antonio Difrancesco (“Tony”) and Mariano Difrancesco (“Mario”) (collectively the “original shareholders”). Throughout its existence, all of the shares in SML have been held by members of the Difrancesco and Turone families. One third of the shares are now registered in the names of Pauline and members of her branch of the family, one third are now registered in the names of Tony and members of his branch of the family and one third are now registered in the names of Mario and members of his branch of the family.
For ease of reference I use the anglicised versions of first names when describing the individual members of the Difrancesco and Turone families who feature in this judgment. I intend no disrespect in adopting that course. It is the way they have been described by all parties during the course of the trial.
The dispute between the parties came to a head shortly after 1 April 2016 when SML sold its business to Stubbins Food Partnerships Limited (“SFP”) and Stubbins Growing Partnerships Limited (“SGP”), companies which were owned and controlled by four of the five directors of SML. The relevant asset purchase agreement (the “APA”) also made provision for the sale and leasing by SML to SFP and SGP of certain real property from which SML had until then carried on its business. The APA and the leases were constituent elements of a wider transaction (the “Transaction”) by which the shares in Continental Express Transport Limited (“CET”), a company in the same ownership as SML, were sold to Logistic Partnerships Limited (“LPL”), a company which was owned and controlled by the same directors who owned and controlled SFP and SGP.
Some time before the Transaction was entered into, a significant number of the shares in SML had been transferred by the original shareholders to nine younger members of the family. Management responsibility had also been transferred to four of them when Pauline's two sons, the fourth defendant Pietro Turone (“Peter”) and the fifth defendant Salvatore Turone (“Sammy”), Tony's son Salvatore Difrancesco (“Spider Sam”) and Mario's son Salvatore Michele Difrancesco (“Salvi”) were appointed directors. By the time of the Transaction there was also a fifth director, Wayne Anthony Smith (“Mr Smith”), who was the only non-family member on the board. He died after the commencement of these proceedings and his estate is the fifth defendant. He was a childhood friend of Peter's, who joined the board later than Peter, Sammy, Spider Sam and Salvi, but who had played a significant role in SML's affairs for some time before he did so.
Peter, Sammy and Mr Smith (the “Director Defendants”, which also includes Mr Smith's estate where the context so requires) and Salvi were not just directors of SML, they were also the four directors of SFP, SGP and LPL and the holders of all of the shares in SFP and LPL, and almost all of SGP's issued shares. The exception was 5 of SGP's 101 issued ordinary shares which were split equally between Pauline, Mario, Tony, Spider Sam and Tony's other son Giovanni Difrancesco (“John”) for reasons to do with the transfer by SML to SGP of certain tax losses, which is the subject matter of one of the issues I have to decide.
The Director Defendants were the driving force behind the Transaction, although there is a difference between the parties on the extent to which Salvi was also involved in its design and implementation. These proceedings flow from the belief of other members of the family, and more particularly Mario and one of his sons Antonio Giuseppe Difrancesco (“Antony”), that the APA and other elements of the Transaction stripped value out of SML without their informed consent and followed a period during which it can now be seen that the Director Defendants profited at the expense of SML from various unratified breaches of duty.
It is common ground that the APA led to the acquisition by companies connected with the directors of SML of a substantial non-cash asset within the meaning of section 190 of the 2006 Act. It is also common ground that no formal resolution approving the APA or other elements of the Transaction was put to or passed at a general meeting of SML with the prima facie consequences (a) that the Transaction was unlawful and voidable at the instance of SML, (b) that the directors of SML, SFP and SGP (and SFP and SGP themselves) are liable to account to SML for any gains they made by the Transaction and (c) that those persons are also liable to indemnify SML for any loss or damage resulting from the Transaction, in each case pursuant to section 195 of the 2006 Act.
The Director Defendants assert that the approval required by section 190(1) of the 2006 Act was supplied by operation of the Duomatic principle ( In Re Duomatic Limited [1969] 2 Ch 365). This is disputed by SML. While most of the essential elements of the Transaction were known to each of the shareholders (and each of them actually signed some but not all of the relevant documentation), it is SML's case that informal unanimous consent was not given to every material element of the Transaction and that the disclosures made to the shareholders were in any event inadequate and misleading.
The misleading statement to which most attention was given at trial was that SML's bank, Barclays Bank Plc (“Barclays”), was no longer willing to support SML and would push it into administration if the Transaction was not approved. There were also a number of other misrepresentations on which reliance is placed, including in particular as to the true value of some of the assets being transferred by SML to SFP and SGP under the terms of the Transaction, and the fact that SFP and SGP were granted leases of SML's property on highly advantageous terms.
In these circumstances, the first issue in the lengthy list of issues agreed between the parties is whether the shareholders of SML gave valid, unanimous, informal consent to the Transaction. As part of the first issue the court is asked to determine whether the Director Defendants acted in breach of duty in causing SML to enter into the Transaction, a question to which any valid informal consent given for section 190 purposes will also be relevant. SML then claims that it has suffered loss as a result of the Transaction. The extent of any such loss is also a matter for determination at this trial.
The second to thirteenth agreed issues are concerned with a number of different breach of duty claims. It is said by SML that during the period after the original shareholders had ceased to be directors, SML's business was mismanaged, and its assets (including the benefit of certain profitable contracts and business opportunities) were misapplied and misappropriated in a number of significant respects. SML contends that this conduct gave rise to breaches by the Director Defendants of one or more of their general duties under Part 10 Chapter 2 of the 2006 Act, including their duty of care under section 174. It is then said that SML was caused loss as a result of the Director Defendants' breaches of duty both in the amount of the value of the assets misapplied and by reason of trading losses sustained through their negligence.
The proceedings also raise three miscellaneous issues. Issue 14 is whether the claims made by SML against the Director Defendants were themselves sold by SML to SFP and...
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