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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Stimpson & Ors v Southern Private Landlords' Association & Ors [2009] EWHC 2072 (Ch) (21 May 2009) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2009/2072.html Cite as: [2010] BCC 387, [2009] EWHC 2072 (Ch) |
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CHANCERY DIVISION
Strand London WC2A 2LL |
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B e f o r e :
(Sitting as a Judge of the High Court)
____________________
(1) MICHAEL STIMPSON | ||
(2) MAXINE FOTHERGILL | ||
(3) ALFRED KNIGHT | ||
(4) SHULA RICH | ||
(5) RICHARD CLARK | ||
(6) MALCOLM CLARK | ||
(7) JOHN PETTMAN | ||
(8) JOHN THORPE | ||
(9) ANDREW LITTLEWOOD | ||
(10) GERTRUDE BYRNE | ||
(11) ALAN GOSS | Claimants/Applicants | |
-and- | ||
(1) SOUTHERN PRIVATE LANDLORDS' ASSOCIATION | ||
(2) BARRY MARKHAM | ||
(3) KENNETH GROVES | ||
(4) MICHAEL COHEN | ||
(5) ANTHONY RICHARD | ||
(6) NATIONAL LANDLORDS' ASSOCIATION | Defendants/Respondents |
____________________
101 Finsbury Pavement London EC2A 1ER
Tel No: 020 7422 6131 Fax No: 020 7422 6134
Web: www.merrillcorp.com/mls Email: mlstape@merrillcorp.com
(Official Shorthand Writers to the Court)
MR I GREENWOOD appeared on behalf of Second to Fifth Respondents
MR A THOMPSON appeared on behalf of Sixth Respondent
____________________
Crown Copyright ©
JUDGE PELLING QC:
(a) an application by the claimant for permission to continue a derivative claim pursuant to section 261 of the Companies Act 2006 ("the 2006 Act"); and
(b) an application for an interim injunction.
The first of these applications came before Evans-Lombe J on 18 March 2009 when he directed that a questionnaire be sent to members of the first defendant – the company in whose name the claimant wishes to bring the proposed proceedings. The second application seeks, in effect, a continuation of the relief granted by Briggs J on 18 September 2008. It has been agreed that I should determine the application for permission first.
(a) a person acting in accordance with section 172 of the 2006 Act (being the section that imposes a duty to promote the success of the company) would not seek to continue to claim; or
(b) where the act or remission from which the course of action is alleged to have arisen was either authorised by the company before, or ratified by the company after, it occurred
- see section 263(2), Companies Act 2006.
Aside from this requirement, in deciding whether to give permission, the court is required to take into account each of the matters identified in section 263(3) of the 2006 Act to the extent they are relevant. It is common ground that the factors referred in section 263(3)(c),(e) and (f) are not relevant. Thus there are three factors which the court is required to take into account along with any other relevant factors not specifically identified in section 263(3) being:
(a) Whether the applicant member is acting in good faith in seeking to continue the claim (s.263(3(a));
(b) The importance that a person acting in accordance with section 172 of the 2006 Act would attach to continuing the claim (s.263(3)(b)); and
(c) Whether the act or remission complained of could be, and in the circumstances would be, likely to be ratified by the company (s.263(3)(d)).
As to (b) the only guidance as to the correct approach is that contained in the judgment of Mr William Trower QC sitting as a judge of this court in Franbar Holdings v Patel and others [2008] EWHC 1534 Chancery, where he said:
"In my judgment, the hypothetical director acting in accordance with section 172 would take into account a wide range of considerations when assessing the importance of continuing the claim. These would include such matters as the prospects of success of the claim, the ability of the company to make a recovery on any award of damages, the disruption which would be caused to the development of the company's business by having to concentrate on the proceedings, the costs of the proceedings and any damage to the company's reputation and business if the proceedings were to fail. A director will often be in the position of having to make what is no more than a partially informed decision on continuation without any very clear idea of how the proceedings might turn out."
"(a) To provide a forum for consideration of matters relating to the letting of private properties and to promote a professional standard of practice and conduct by all its members for the benefit of the private rented sector as a whole;
(b) To represent the general views of the members to local authorities, national authorities, parliament and any other body which has jurisdiction over or an interest in the letting of private properties;
(c) To consider any matters which affect private landlords in general and to promote such actions that will benefit the members and safeguard their interests consistent with the maintenance of professional standards of conduct;
(d) To provide advice and assistance to members in connection with problems relating to the letting of properties;
(e) To promote the professional standing of the Association within the private rented sector;
(f) To provide and support such social and charitable events as the Association may decide, and
(g) The doing of all such other things as are incidental or conducive to the attainment of the above objects."
"(d) to federate or amalgamate with, affiliate or become affiliated to or co-operate with any body having the same or similar objects and to acquire and undertake all or any part of the assets, liabilities and engagements of any such body which the Association may lawfully acquire or undertake."
By clause 5 of the memorandum:
"The income and property of the Association shall be applied solely towards the promotion of the Objects and no part shall be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise by way of profit, to members of the Association."
and by clause 8 of the memorandum:
"If the Association is wound up or dissolved and after its debts and liabilities have been satisfied there remains any property it shall not be paid to or distributed among the members of the Association, but shall be given or transferred to an association or associations having objects similar to the Objects which prohibits the distribution of its or their income and property to an extent at least as great as that imposed on the Association by clause 5 above, chosen by the members of the Association at or before the time of dissolution and if that cannot be done then to some other charitable object."
These clauses are relied upon by the respondents to the application because they say it shows that one of the bases of the application - that the members have been deprived of the first defendant's assets - is misconceived since the members have no entitlement to the assets either before a winding up - see clause 5 of the memorandum - or after - see clause 8 of the memorandum.
" … is absent without the permission of the Executive Committee from 50% of the general meetings and Executive Committee meetings held within a calendar year and the Executives resolve that his office be vacated."
The executive was empowered to regulate their proceedings as they thought fit (see clause 42). Thus, they were entitled to adopt standing orders but, equally, were entitled to vary or revoke such orders or depart from them as a majority attending a quorate meeting of the executive might consider appropriate.
"That the executive committee be authorised with immediate effect to begin formal negotiations with other national landlords' associations and if in the opinion of the executive committee it is in the best interests of members and the company to do all such acts and things to federate, merge or amalgamate with, affiliate or become affiliated to, or co-operate with any body having the same or similar objects as the company and to (1) acquire and undertake all or any of the assets liabilities and engagements of any such body; (2) sell, dispose or transfer all or any of the assets, liabilities and engagements of the company to any such body."
(Quote unchecked)
The minutes record that the result was announced at 1.30pm following a poll. The following appears in the minutes after the passing of the resolution is recorded:
"(3) The Board gave an undertaking that further consultation on resolution 3 would be conducted and that should members want to vote before proceeding, members would be allowed to express their thoughts on the merits of any potential merger by way of a voting procedure."
(Quote unchecked)
"Unless expressly provided in this agreement, SPLA shall transfer with full title guarantee, or to the extent that it is not the owner thereof shall use reasonable endeavours to procure the transfer with full title guarantee, and NLA, with a view to carrying on the Business as a going concern, shall acquire the Business and Assets free from all Encumbrances and with effect from the Effective Time."
By clause 2.3, cash was excluded from the assets transferred under the agreement. What was to happen in relation to the cash was the subject of a side letter. Clause 3 of the agreement provided that
"In consideration for the acquisition of the Business and Assets the NLA shall assume from SPLA all Assumed Liabilities relating to the Business and the Assets as exist immediately at the Effective Time and Members of the SPLA will benefit from increased lobbying power as a result of the merger."
Clause 8.2 of the agreement provided that:
"NLA shall with effect from the Completion Date indemnify the SPLA Directors from and against all losses, costs, or expenses which any of them may suffer or incur (including without limitation, professional costs reasonably and properly incurred on a full indemnity basis) as a result of or in connection with all acts or omissions of the SPLA Directors prior to the Completion Date."
By Clause 11.1 of the agreement:
"Two directors of SPLA (reverting to one director of SPLA if less than 4,000 Members transfer to NLA by the date of the NLA AGM in November 2008) will be offered directorship positions on the NLA board, with role descriptions to be agreed between the parties (acting reasonably and in good faith)."
Various restrictive covenants were entered in to which are set out in clause 15 of the agreement and which, if enforceable, would prevent the first defendant from resuming independent operations.
"on completion of the business acquisition agreement between our associations we make further provisions for the use of the SPLA cash balances which will be transferred within 28 days of completion to the NLA:
(1) The SPLA cash balances that are transferred will be kept in a separate, designated account.
(2) The two SPLA directors who become directors of the NLA under the terms of the acquisition agreement will be signatories to this account, together with the NLA Chairman and the NLA Director of Finance. Withdrawals from the account will require one signature from each of the two pairs of signatories.
(3) The SPLA funds will be used to enable NLA to meet its obligations for the provision of advice, information, meetings, representation, and services which have been assumed on behalf of the SPLA.
(4) The SPLA-nominated directors may also approve expenditure from this account for purposes other than those prescribed above provided such expenditure is consistent with the aims and objectives of the NLA.
(5) The NLA Director of Finance will maintain a record of all transactions, which will be included in routine financial reports to the NLA Board.
This letter is intended to be legally binding."
The evidence suggests that some £200,000 was to have been or was transferred from the first defendant to the sixth defendant.
"Provide a forum for consideration of matters relating to the letting of private properties and to promote a professional standard of practice and conduct by all its members for the benefit of the private rented sector as a whole."
Similarly paragraph (f) provides for a purpose other than the benefit of the members, other than perhaps incidentally. In my judgment however, the objects other than those that provide directly for the benefit of the company's members are very much the minority. Moreover, there is no evidence that shows in practice that either of these objects played a significant role in the activities of the first defendant. Thus the effect of Section 172(2) on the outcome of this case is unlikely to be significant.
(a) there is one claim based on the quoracy issue which is realistically arguable as against the second to fifth defendants;
(b) the claim against the sixth defendant is speculative because it is far from clear that even if the breach of fiduciary duties alleged as against the second to fifth defendants are established, the first defendant will be able to show a sufficient level of knowledge attributable to the sixth defendant to enable the claim against the sixth defendant to succeed;
(c) the value of the claim is modest in reality. It is not realistically arguable that it has a value of in excess of £5 million as alleged by the claimant on the material before me. At best the claim is for the return of £200,000 less any liabilities settled on behalf of the first defendant together with the tangible assets or alternatively their value;
(d) the costs of the litigation are likely to be in the order of £350,000 per side. The first defendant can fund such expenditure only because of the goodwill of the first claimant and it is foreseeable that such funding will cease to be available for unforeseeable reasons before completion;
(e) the first claimant will seek to recover his outlay from the first defendant;
(f) on any view it is likely that up to 20 percent of the costs will be irrecoverable and thus will become a debt due from the first defendant to the first claimant;
(g) if part of the claim is lost it is likely that only part of the first defendant's costs will be recoverable thereby increasing the first defendant's debt to the first claimant;
(h) if the litigation is lost the first defendant will not have the means to pay;
(i) although there is some evidence that about 700 members wish to rejoin the first defendant, it is unclear that will remain the case after a further year of litigation particularly if the first defendant were to emerge from the litigation with substantial debts incurred as a result;
(j) it is not clear that the first defendant would be viable with 700 members and there is no logical reason to suppose that many more will return at any rate in the short term; and
(k) the interests of the members can be provided for by the sixth defendant, which provides services at least equal to and arguably better and more extensive than those provided by the first defendant at a lower subscription which itself suggests that the ability of the first defendant to recover a viable mass of members in the short term would be limited.
(a) I conclude that a hypothetical director acting in accordance with Section 172 would not seek to continue these proceedings and by reason of that permission must therefore be refused applying Section 263(2); but
(b) if I am wrong on that point I would nonetheless refuse permission.