Unchained Growth Plc (in Liquidation)+john William Powell V. David Buchanan Gray And Others
| Jurisdiction | Scotland |
| Judge | Lady Dorrian |
| Neutral Citation | [2005] CSOH 99 |
| Date | 29 July 2005 |
| Docket Number | A1237/02 |
| Court | Court of Session |
| Published date | 29 July 2005 |
| OUTER HOUSE, COURT OF SESSION [2005] CSOH 99 | |
| A1237/02
| OPINION OF LADY DORRIAN in the cause (FIRST)UNCHAINED GROWTH PLC (IN LIQUIDATION) AND (SECOND) JOHN WILLIAM POWELL Pursuers; against DAVID BUCHANAN GRAY & OTHERS Defenders: ________________ |
Pursuers: McKenzie, Solicitor Advocate; Pinsent Masons
First Defender: McLean; McClure Naismith
Second and Third Defenders: Moynihan, QC; Simpson & Marwick
29 July 2005
[1]The pursuer company, ("the company") was incorporated to take advantage of certain tax concessions offered under the Business Expansion Scheme ("the BES") in terms of the Income and Corporation Taxes Act 1988 Chapter III and the Finance Act 1988. The qualifying activities in which the company was to invest was the letting of houses on assured tenancies with a view to profit. With that aim in mind the company entered into an agreement ("the agreement") with Persimmon PLC ("Persimmon") for the purchase of certain properties for letting purposes.
[2]The agreement, which is 6/2 of process, provided that, on the company making a request to Persimmon to purchase houses having a certain aggregate list price, Persimmon would sell to the company houses near to but not exceeding the aggregate list price. "List price" effectively means the price, published by Persimmon, at which the property is offered by them for sale with vacant possession on the open market. The agreement contained certain conditions requiring that the houses would be suitable for the qualifying purposes but the actual properties were to be identified and chosen by Persimmon and the price was to be Persimmon's list price. Clause 4.6 provided that Persimmon were not to choose more than six houses on any one site. Clause 4.7 provided that not more than 10% of the houses were to be leasehold and clause 4.8 provided that the houses should not include more than 25% of houses on a specified site or within the same block of flats.
[3]There were certain price and value warranties built into the agreement. Clause 9 included a warranty by Persimmon that the list price of each house would increase at the rate of seven per cent compounded annually over the guarantee period. The Guarantee Period was defined as a period of (i) five years commencing on the day following that on which a counterpart of Persimmon's standard terms and conditions was sent by Persimmon (a requirement of clause 6.3) or (ii) the date when the house was disposed of by the company, whichever was the earlier. The clause provided that at the end of the last of the guarantee periods the actual or deemed value of the houses (meaning either the result of a sale at market value or a value determined by reference to market value) and the guaranteed value shall be calculated. The guaranteed value is the list price increased by seven per cent compounded annually. Thereupon, if there were a shortfall between the combined total of actual and deemed values and the combined total of guarantee values, Persimmon were obliged to pay the difference within a specified period. The said payment is described as being "by way of compensation for breach of warranty and reduction in the list prices paid by the company". Clause 9.6 provides that the combined total of the Actual Value and the Deemed Value for the houses for the purposes of the warranty shall be taken to be not less than the list prices for the houses.
[4]A further warranty was contained in clause 7. This provided that if, within six months of selling to the company at list price a house on a specified site (a site listed in a schedule to the agreement), Persimmon sold to any other party a house on the same specified site, and of similar size and design, at a price lower than that paid by the company pursuant to the agreement, Persimmon would, within 14 days of the subsequent sale, notify the company in writing of the amount by which it was lower and would, within 28 days of that notification, pay that amount to the company by way of refund of list price.
[5]The company is now in liquidation and this is an action by the liquidator in an attempt to recover certain losses which it is said the company incurred through the negligence of inter alia certain of its directors. When the action first came before me on the Procedure Roll there were eight defenders and notes of argument for all defenders and for the pursuer. At the start of the hearing I was advised that it was the intention to abandon the action against the fourth to eighth parties and to proceed only against the first three defenders as directors of the company. I was further advised that although the notes contained reference to various arguments about jurisdiction, competency and other matters, no arguments were to be advanced about these points. Moreover the parties were agreed that the issue of limitation, which was raised by all three defenders, would require to be dealt with at proof.
[6]The arguments before me therefore proceeded on the general pleas to the relevancy of the first to third defenders.
The Pleadings
[7]The pursuers' complaints about the actions of the companies directors fall into two main categories, although they are rather jumbled together in the pleadings, which run to 45 pages.
[8]In the first place, it is averred that the terms of the agreement were not advantageous to the company. In particular, it is averred that the agreement, notwithstanding the warranty clauses, contained inadequate protection for the company. This inadequacy was said to lie in the following:
(i) that Persimmon were entitled to select the properties to be purchased;
(ii) that there was no provision for the properties to be valued at the time of purchase. There was thus no method of checking the list prices which are averred to have been above market value for the properties. It is averred that builders of residential properties were under pressure to sell stock and there was thus no need to accept list price as the purchase price.
(iii) Clause 7 only provided protection if comparable properties were sold within six months. If no comparable properties were sold, there was no protection.
[9]In relation to this aspect of the case, the pursuers aver in article five of condescendence the duties which they say were incumbent upon the defenders as directors and which it is said the defenders breached. These are:
(i) A duty to consider the agreement carefully and to seek to protect the company's position.
(ii) A duty not to allow the company to enter into the agreement without adequate protection being included.
(iii) A duty to take reasonable steps to ensure that list price equated to market value.
(iv) A duty to negotiate a discount for a volume purchase.
(v) A duty to seek some control over the selection process.
(vi) It is averred that they had a duty not to allow the company to enter into the agreement and that without the protections desiderated a director acting with reasonable care and skill would not have allowed the company to enter into the agreement.
In essence this comes down to a claim that the directors should not have entered into this agreement on these terms and that by doing so they caused loss to the company.
[10]The extent and nature of the loss claimed to result from entering into the agreement is averred in article 6. It is averred there that the company paid £1,726,995 for the property portfolio when the true value of the portfolio was only £1,440,00. They aver that in 1997 a valuation as at the date of acquisition was obtained and this placed a value on the portfolio as at 1991 of £1,440,000. The pursuers thus claim a loss of £286,995. They then aver that the company lost the ability to use this money and estimate their loss in this regard, assuming a return of 8 per cent per annum, to be a minimum of £250,760.
[11]The second category of complaint against the defenders is that, having entered into the contract, the directors did not ensure that it was adhered to in a way which protected the companies interests. Again, several complaints arise, which can be identified under different headings.
(a) Late payment under guarantee
[12]The pursuers aver that in or about April or May 1991 the company purchased 26 properties, in twelve different locations, at an aggregate price for £1,619,995, contracts being exchanged by 12 June 1991. It is averred that on this basis the guarantee payment would have been due on 10 July 1996. Six months after the initial purchase the company purchased another two properties in one of the original locations at an aggregate price of £107,000, contracts being exchanged on 6 December 1991. It is averred that the company needlessly treated those as acquired under the agreement thus delaying the date on which payment under the guarantee was due to 3 January 1997. It is averred that actual payment under the guarantee was not made until on or about 1 April 1997 and it is averred that no interest was paid. Under the agreement interest fell to be applied to late payment at the rate of 4% per annum above base rate for the time being but such a payment was not insisted on.
[13]The loss said to arise from this is averred to be "interest of approximately £55,523.052 arising from "late recovery of the guarantee payment". It is then averred that the company lost the use of this money and that loss is estimated, on a return of 8% per annum, at a minimum of £22,683.94.
(b) Aggregate loss on sale of two late properties
[14]Associated with the claim regarding late payment under the guarantee is a claim that there was an aggregate loss on sale of the two late properties in the sum of £4000. The only averment appears at page 12B. No averments about this appear in the averments of loss in article 6.
(c) Clause 7 Claim
[15]The pursers aver that seven properties were sold by Persimmon to third parties at a lower price that that paid by the company but the directors did not make a warranty claim under clause 7.
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