Tracey David Standish v The Royal Bank of Scotland Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Trower |
| Judgment Date | 19 November 2019 |
| Neutral Citation | [2019] EWHC 3116 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CH-2018-000244 |
| Date | 19 November 2019 |
[2019] EWHC 3116 (Ch)
IN THE HIGH COURT OF JUSTICE
IN THE BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY DIVISION
Royal Courts of Justice
7 Rolls Building, Fetter Lane
London, EC4A 1NL
Mr Justice Trower
Case No: CH-2018-000244
David Reade QC and David McIlroy (instructed by Lexlaw Solicitors & Advocates) for the Appellants/claimants
Paul Casey (instructed by Addleshaw Goddard LLP) for the Respondents/defendants
Hearing dates: 29 TH OCTOBER 2019
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.
This is an appeal against a decision of Chief Master Marsh dated 30 July 2018 by which he refused the claimants permission to amend, struck out the particulars of claim and the claim form and dismissed their claim.
In making the orders that he did the Chief Master dealt with the amendment and strike out applications together and assumed that the allegations made by the claimants in the draft amended particulars of claim in the form they were put before him (“the APoC”) were true. It was common ground between the parties, both at the hearing before the Chief Master and at the hearing before me, that this was the right approach.
The test to be applied on a strike out application was also common ground both before the Chief Master and on this appeal: the court must be certain that the claim as it is set out in the statement of case is bound to fail: Richards v. Hughes [2004] PNLR 706, at [22]. It was not therefore suggested that the Chief Master had erred in the test that he applied. The appeal was based on a submission that the Chief Master had gone wrong in applying that test to the case pleaded in the APoC.
The proceedings had been brought by nine individuals, eight of whom are members of the Standish family, who were at various times shareholders in a company which ultimately came to be known as Bowlplex Ltd (“the company”). The company operated a bowling business at 16 separate sites in the UK.
The first defendant, the Royal Bank of Scotland plc (“RBS”), provided or administered banking facilities for the company. It appears that National Westminster Bank Plc (“NatWest”) was also involved in the provision of those facilities, but for present purposes there is no need to distinguish between the two banks, and I shall call them together and separately “the Bank”. The second defendant, formerly called West Register Number 2 Ltd (“West Register”), whose role I will describe shortly, was an indirect wholly owned subsidiary of the Bank.
It is the claimant's case that the Bank, together with West Register and an employee of West Register (Mr Kamildeep Sondhi), took steps to undermine the company's financial position so as to enable the Bank and/or West Register to acquire 80% of the company's equity at the expense of the claimants. The purpose for which those steps were taken has been called “the unconscionable purpose”. They claim that the acquisitions were achieved through two restructurings (called the First Restructure and the Second Restructure). The losses claimed in these proceedings are the amounts which it is said that the claimants' shares would have been worth but for the First and Second Restructures.
The way in which the case is put is that there was a conspiracy between the Bank, West Register and the company's non-executive Chairman, Mr Sean Cooper a turnaround consultant who was appointed at the instigation of the Bank, to achieve the unconscionable purpose by unlawful means. Initially the particulars of claim alleged breaches of contract, breaches of an equitable duty and breaches of fiduciary duty by a shadow director as the unlawful means which underpinned the claim.
The only unlawful means now relied on is the breach by Mr Sondhi of his fiduciary duties as shadow director of the company. It is also pleaded that West Register became a shadow director of the company through Mr Sondhi, alternatively that West Register or the Bank is vicariously liable for his actions.
I summarise the relevant pleaded facts below. The defendants do not accept all of the pleas made in the APoC, but as I have already mentioned they agree that the appeal should proceed on the basis that they are all true.
Throughout the period 2007 to 2009 the company's business suffered as a result of the recession such that in April 2010 it was in breach of one of its banking covenants: viz. keeping its debt to earnings ratio below a certain level. In June 2010, following and in the light of that breach, the company's account was transferred from the Bank's Southampton branch to its global restructuring group (“GRG”).
It is pleaded that the stated objective of the GRG was to support the turnaround of potentially viable customers. The way in which it did so has become highly controversial. In his judgment the Chief Master described some of the conclusions of a skilled person's investigation, conducted by Promontory Financial Group (UK) Ltd (“Promontory”) under section 166 of the Financial Services and Markets Act 2000 into the Bank's treatment of SME customers referred to the GRG. Those conclusions were very critical of the way in which the GRG had been operated.
In particular, Promontory concluded that the GRG saw the delivery of its own narrow commercial objectives as paramount, that it focused on the income that the GRG could generate from the charges levied on distressed customers and that it failed to take adequate account of the interests of the customers whose accounts it handled. The Chief Master also drew attention to two particular conclusions reached by Promontory. First that the relationship between the GRG and West Register was inappropriate and gave rise to a series of conflicts of interest that were not adequately addressed. Secondly, that there had been cases of a material loss of ownership rights in a business where an unnecessary upside instrument had been required of it.
It is plain that these are serious findings, and that it appears that they may be relevant to the particular situation of the company and the complaints made by the claimants in these proceedings. However, the Chief Master concluded that what mattered was whether or not any unethical conduct by the Bank founds a legal claim. The answer to that question will depend on all the circumstances pleaded in the claimants' statement of case. I consider that he was correct to take that approach.
In August 2010, shortly after the company's account was transferred to the GRG, Mr Sondhi started to attend meetings between the Bank and the company. It is said by the claimants that, at a meeting held around this time, Mr Sondhi had indicated that West Register wished to obtain an 80% stake in the company as a price for continuing banking support.
There was then a period of time during which the claimants say that they were both implementing a strategy to improve the company's cash position and taking other steps in their attempts to remedy the breach of covenant. This led on 1 July 2011 to what is described in the pleadings as the First Restructure under which West Register acquired 35% of the equity in the company and the Bank and the company agreed to a restructuring of some parts of the company's debt.
The First Restructure also provided for West Register to appoint an observer to attend the company's board meetings and to appoint a non-executive chairman of the company. The person whom West Register appointed as observer was Mr Sondhi.
Not long thereafter, the company approached the GRG with a recommendation that the company should propose a company voluntary arrangement (“the CVA”), primarily designed to compromise its guarantee liability to a landlord in respect of premises formerly rented by the company and which had now been assigned to (or taken over by) a new tenant. A similar proposal had been made but rejected prior to the implementation of the First Restructure. It is pleaded that KPMG (instructed by both the company and the Bank) advised that RBS would also have to suffer pain in the form of a write-down of part of its debt in order for the CVA to be acceptable to the landlords.
During the period in time between this recommendation and the approval of the CVA, West Register exercised its rights under the First Restructure to appoint Mr Cooper to be the non-executive chairman of the company.
The CVA was eventually approved in March 2012. The claimants assert that the company and the claimants had no choice but to agree the terms that the Bank extracted as a condition for supporting the CVA. They included the write-off of £4.5 million of outstanding debt in return for a reorganisation of the equity holdings. This meant that West Register ended up with 60%, the claimants ended up with 20% and the final 20% was to be transferred to a management incentive scheme called the Bowlplex Employee Share Trust. The implementation of the terms on which the equity holdings were reorganised and the Bank's debt was written down occurred in April 2012 and was called the Second Restructure.
In May 2012, Mr Cooper, acting with the support of RBS, dismissed Mr Tracy Standish as the company's managing director. The consequence of Mr Standish' dismissal is said to be that he was no longer entitled to receive the shares held by the Bowlplex Employee Share Trust....
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