BAILII [Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

England and Wales Court of Appeal (Civil Division) Decisions

You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Profinance Trust SA v Gladstone [2001] EWCA Civ 1133 (2 July 2001)
Cite as: [2001] EWCA Civ 1133

[New search] [Context] [View without highlighting] [Printable RTF version] [Help]

Neutral Citation Number: [2001] EWCA Civ 1133
No A3/2000/0435

(Sitting as a Deputy High Court Judge)

Royal Courts of Justice
London WC2
Monday, 2nd July 2001

B e f o r e :



- v -


(Computer Aided Transcript of the Palantype Notes of
Smith Bernal Reporting Limited, 180 Fleet Street,
London EC4A 2HD
Tel: 0171 421 4040
Official Shorthand Writers to the Court)


MISS CATHERINE NEWMAN QC and MR P M EMERSON (Instructed by Russell-Cooke Potter & Chapman of London) appeared on behalf of the Appellant
MR PUSHPINDER SINGH (Instructed by Robbins Olivey of Woking Surrey) appeared on behalf of the Respondent



Crown Copyright ©

  1. LORD JUSTICE ROBERT WALKER: The only issue on which we have to rule is as to the costs of the hearing below. The hearing below was, as is described in the judgment of the court, an abbreviated hearing of a petition under Section 459 of the Companies Act 1985 in which the petitioner was a Panamanian company called Profinance SA ("Profinance") and the respondent was Mr Paul Gladstone. Profinance owned 40 per cent of the shares in the company called Americanino Ltd to which the petition related. Mr Gladstone owned the other 60 per cent. The judge's order was that Mr Gladstone should purchase Profinance's 40 per cent holding in the company for 46,000. He arrived at that sum as 40 per cent of 80,000 being the agreed value of the entirety of the company's shares as at December 1997, the date of the petition. But the judge then uplifted that sum by 45 per cent in order to provide for the delay in payment. In that way he arrived at an aggregate sum of 46,000.
  2. This court has, for reasons set out in the judgment of the court, allowed the appeal and directed that Mr Gladstone should purchase Profinance's 40 per cent holding for its value as at March 2000, the date of the eventual hearing of the petition. The result is that the sum Mr Gladstone has to pay is increased to 86,000. It is agreed that the appeal must be allowed with costs in this court.
  3. The issue is as to the costs below. What the deputy judge did was to make no order for costs in favour of Profinance; on the contrary, he ordered Profinance to pay half of Mr Gladstone's costs of the petition. The judge took as his guidance, in the first place, Ord.44,r.3 of the Civil Procedure Rules and, in the second place, a well-known and important passage in the speech of Lord Hoffmann in O'Neill v Phillips [1999] 1 WLR 1092, 1106-8. The same passage is also reported at [1999] 2 AER 961, 974-6.
  4. The petition was issued at the very end of 1997. Within three weeks, that is on 19th January 1998, Mr Gladstone's solicitors sent a letter headed "Without prejudice as to costs", making an offer in the first instance to purchase the 40 per cent shareholding for 40,000. We know, with hindsight, that that offer exceeded the value of 80,000 eventually agreed for the whole share capital of the company as at the date of presentation. In the alternative (and so far as the deputy judge was concerned, more importantly) the letter also offered to purchase the shares at a sum arrived at by an independent valuation. The letter made proposals as to how the costs of independent valuation should be borne.
  5. On 28th January 1998 Profinance's solicitors wrote indicating a willingness to accept the proposal for independent valuation but subject to four conditions which were, first, that certain overdue statutory accounts should be filed; secondly, that those accounts should be accepted by Profinance itself as giving a true picture of the company's financial position; thirdly, that more recent management accounts should be provided; and fourthly, that those more recent management accounts should be accepted by Profinance as representing the true financial position of the company. By 3rd March it became apparent that Profinance was not willing to agree that an independent valuation should be binding on it in any way. By that time directions given in the Companies Court had provided for experts' reports to be prepared on each side and filed. So already a substantial escalation of costs was occurring.
  6. In arguing that the judge erred in exercising his discretion in making the costs order that he did, Miss Catherine Newman QC for Profinance has referred to what Lord Hoffmann said in his speech in O'Neill v Phillips about equality of arms. He said:
  7. "Fourthly, the offer should, as in this case, provide for equality of arms between the parties. Both should have the same right of access to information about the company which bears upon the value of the shares and both should have the right to make submissions to the expert, though the form (written or oral) which these submissions may take should be left to the discretion of the expert himself."
  8. The deputy judge, having referred to that passage in his judgment, commented on it as follows:
  9. "[Lord Hoffmann] does not say that the information must actually be in the possession of the Petitioner before the Petitioner is in a position to evaluate the offer. Indeed, since the offer is an offer to have the value determined by an independent valuer, there would in the ordinary case be no need for the Petitioner to have the information relating to the value of the company before agreeing that the value should be determined by an independent valuer. The need for information may arise later on in the process, at the time when the Petitioner and the Respondent wish to make submissions to the independent valuer, as Lord Hoffmann envisages."
  10. It may be that those observations are reading a little more into Lord Hoffmann's remarks than can readily be justified. The fact is that any excluded minority shareholder would wish to have confidence that an independent valuation would be correctly carried out before committing himself to the price at which his shares should be acquired being determined in what Lord Hoffmann recognised may be a summary manner.
  11. Miss Newman has taken us in some detail through the correspondence and pointed to occasions when it was difficult for Profinance's solicitors to extract detailed information from the other side which bore on the position of the company's finances. Nevertheless, in due course a good deal of information was produced. It was the foundation of the agreed values which it must be noted had built into them an adjustment to provide for the prejudicial conduct on which the petition was based. Nevertheless, Profinance consistently rejected offers which have, as we now know with hindsight, been shown to have exceeded the market value at the times those offers were made, that is at different times during 1998. With one exception, no counter offer was forthcoming from Profinance.
  12. In bald summary, the original offer made in January 1998 was followed by an offer of 56,000 (less 14,000 for costs) in April 1998 and of a sum of rather over 70,000 (to include an element of costs) made in the third week of July 1998. The high point was reached at the end of July 1998 when there was an offer of just over 70,000 (together with 17,000 for costs) although that offer was only open for a very short time indeed. The only offer made the other way was an offer by Profinance to sell its 40 per cent shareholding for the sum of 105,000. That offer was made at the end of August 1998. It was accepted subject to contract and very nearly resulted in a concluded contract. It foundered for reasons which have not been fully explained but which certainly included a requirement imposed by Profinance in mid-September 1998 for a further 21,000 to purchase the shares in another company called Sound Storage Ltd which was then, it seems, of little or no value.
  13. Having been taken through the correspondence in detail, it seems to me that there were faults on both sides in the premature rejection of attempts to settle what has in the end turned out to be extremely expensive litigation over relatively small sums of money. Having listened to the submissions on both sides and the criticisms made of the judge's judgment, it appears to me that the approach which the judge took is one which can be justified even though this court has, in the event, varied, and substantially varied, the order which the judge made. That is because had the matter been settled at a relatively early date in 1998 the huge gulf which subsequently emerged between valuation as at the date of the petition and valuation as at the date of disposal of the matter would not have been there. The agreed valuations indicate that the adjusted value of the whole share capital of the company throughout 1998 was in the region of 80,000.
  14. It is therefore open to this court to interfere with the judge's order only if satisfied that he exercised his discretion on a wrong basis, and the fact that this court has reversed his substantive order does not, in the circumstances which I have described, provide a basis for interfering with his discretion. It appears to me that he may, to some extent, have underestimated the difficulties which at one stage Profinance was encountering in obtaining information. Nevertheless, proceedings were on foot and it was a reasonable expectation that all that information would have been made available to an independent valuer. It was on the offer to go to an independent valuation rather than by reference to subsequent offers in particular sums that the judge largely based his decision. However the subsequent history of offers tends to confirm the same result. There will no doubt be hard feelings whatever result is reached on costs because the litigation has been so lamentably expensive.
  15. Giving the matter the best consideration I can, I see no reason to disturb the judge's order for costs below.
  16. LORD JUSTICE SCHIEMANN: I agree with the result proposed by my Lord, and I agree with his reasons.

BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII