Towergate Financial (Group) Ltd v Mr Mitchel Hopkinson
| Jurisdiction | England & Wales |
| Judge | Cockerill J |
| Judgment Date | 24 April 2020 |
| Neutral Citation | [2020] EWHC 984 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2015-000912 |
| Date | 24 April 2020 |
[2020] EWHC 984 (Comm)
IN THE HIGH COURT OF JUSTICE
OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
7 Rolls Building
Fetter Lane
London, EC4A 1NL
Mrs Justice Cockerill DBE
Case No: CL-2015-000912
Gavin Kealey Q.C. and George Spalton instructed by BLM LLP for the Claimants
Joanna Smith Q.C. and Matthew Hodson instructed by Lennons Solicitors for the First, Second and Fifth Defendants and Freeths LLP for the Third, Fourth and Sixth Defendants
Hearing dates: 6, 7, 8 April 2020
Draft Judgment sent to parties: 22 April 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
This is a trial of a preliminary issue on a point of construction. The issue relates to the meaning of indemnity provisions contained in a share sale agreement, the resort to these provisions having been caused by complaints of historic mis-selling of financial products. This trial, which is the third time that these provisions have been considered by the Courts, has been conducted remotely over two and a half days.
The issue is between the Claimants (companies in the Towergate Financial Group) on the one hand and the First, Second and Fifth Defendants (“the Hopkinson Defendants”) and the Third, Fourth and Sixth Defendants (“the Howard Defendants”) on the other. I will refer to the Hopkinson and Howard Defendants collectively as “the Defendants”.
Pursuant to a share purchase agreement (“the SPA”), dated 5 August 2008, Mr Mitchel Hopkinson (Mr Hopkinson) and Mr Mark Howard (Mr Howard), as trustees of certain trusts, sold the entire issued share capital of M2 Holdings Limited (“M2”) to Towergate Financial (East) Holdings Limited (“Towergate East”) who is the Third Claimant. M2 is now known as Towergate Financial (East) Intermediate Limited and is the Fourth Claimant.
The SPA thus provided for the sale of M2 which, with its subsidiaries, carried on business providing financial advice to retail customers. The total purchase price was £9.9 million, comprising an initial payment of £5.94 million and deferred consideration of £3.64 million which has not yet been paid.
In this action, the Claimants are seeking a declaration that they are entitled to be indemnified against certain liabilities for professional negligence pursuant to an indemnity provision in the SPA. Alternatively, the Claimants seek damages. The liabilities and costs in question are potentially in excess of £50 million.
The First to Sixth Defendants are individuals who each agreed to give indemnities under the SPA. For the purposes of the analysis below, the group of persons who gave those indemnities has been called in argument before me “the Indemnitors”, to distinguish them from a slightly different group of persons who gave warranties under the SPA – a point of some significance in argument.
The First and Third Defendants gave their indemnities in their personal capacity, alternatively in their capacity as Trustees of the ‘Trusts’ (as defined in the SPA) and they are each, accordingly, also joined in that capacity as Fifth and Sixth Defendants respectively. The Second and Fourth Defendants are the wives of First and Third Defendants respectively, and they gave their indemnities in their personal capacity.
There are other Defendants who are individuals who (it is alleged) were agents of the Second and Fourth Claimants, and provided financial advice and/or services to retail customers in their capacity as agents. They are not parties to this preliminary issue.
The maximum liability of the Indemnitors under the indemnity is limited to the consideration received by them or on their behalf.
The preliminary issue hearing was ordered by the Court with the consent of both parties because it concerns a narrow issue which is susceptible of disposing of the dispute entirely. That is because it is the Defendants' case that, on the true construction of the indemnity provisions any claim had to be notified to them “as soon as possible”, and that was not done.
The claims giving rise to the indemnity claim
The claim under the indemnity provisions arises out of two ‘Skilled Person Reviews’ commissioned by the Financial Conduct Authority (“FCA”) pursuant to section 166 of the Financial Services and Markets Act 2000 (“ FSMA”). They concern:
i) All advice given by Towergate Financial firms in relation to Enhanced Transfer Value (“ETV”) schemes, which resulted in retail clients transferring their benefits out of a defined benefit scheme during the period from 1 December 2001 to 29 January 2014 (the “ETV Review”). This includes a review of advice provided by M2 prior to the “Completion” of the SPA;
ii) The promotion and sales of Unregulated Collective Investment Schemes (“UCIS”) and other unregulated schemes between 1 December 2001 and 31 December 2013, with the review taking into account the degree of customer detriment (the “UCIS Review”). Again, this includes a review of promotion and sales by M2 prior to the “Completion” of the SPA.
In essence, therefore, the reviews relate to schemes for the transfer of benefits out of defined benefit pension schemes and to unregulated collective investment schemes marketed by the company, including over a period of some six and a half years before the SPA.
The reviews have already resulted in the payment of very significant amounts of compensation for mis-selling to clients dating from the previous period of ownership. Further claims are still to be finalised. The first payment was made in January 2016.
The Notice
The disputed notice of possible indemnity claims was given in a letter dated 29 July 2015 (“the Notice”). That notice was, as will be immediately apparent, served a little before the seventh anniversary of the SPA. The events of the period leading up to this notice – and their significance — are considered separately below.
After referring to the agreement and to the reviews, the Notice stated:
“Those reviews are currently underway and have already resulted in the discovery of a number of cases where advice given to customers was not suitable which is likely to [result] in a payment of redress being made to those customers. Towergate Financial's position is that it is likely that further claims will be identified against Towergate Financial and that a number of those claims are likely to arise from business which was transacted by M2.”
The letter referred to the indemnity provision and continued: “ The redress payments made as a result of the Section 166 reviews will fall within the scope of this clause and Towergate Financial will therefore be entitled to bring a claim against the Vendors and their spouses for an indemnity in accordance with the terms of clause 5.9 of the Agreement.”
It stated that the purpose of the letter was to give notice of the claim for an indemnity and that the companies concerned would seek to recover, in relation to each individual claim that arises, the amount of the excess under the company's professional indemnity policy at the date of the acquisition. It stated that 86 unregulated collective scheme transactions and about 1,300 transfers out of defined benefit schemes made before the sale of the company had so far been identified and that further cases might be identified.
The relevant clauses of the SPA
The issue before me primarily concerns Clause 6 but necessarily also concerns Clause 5 of the SPA. The relevant terms within those clauses are defined in Clause 1, the Definitions and Interpretation Clause:
“In this Agreement the following words and expressions shall (except where the context otherwise requires) have the following meanings: …..
“Claim” means a Warranty Claim and/or a Tax Claim …
“Completion Date” means the date hereof ….
“Share Warranties” means the warranties contained in or referred to in clause 5 and schedule 3 …
“Tax Claim” means a claim under the Tax Warranties …
“Tax Warranties” means the warranties on the part of the Warrantors set out in part 2 of schedule 4 ….
“Warranty Claim” means a claim for breach of any of the Warranties
“Warranties” means the Share Warranties and the Tax Warranties
“Warrantors” means the Vendors and the Registered Holders…
1.2.16 Any references to “indemnify” and “indemnifying” any person against any circumstances shall include indemnifying in full and holding him harmless from...
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