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Cite as: [2005] EWCA Civ 604

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Neutral Citation Number: [2005] EWCA Civ 604
A3/2005/0777 & A3/2005/0816 &


Royal Courts of Justice
London, WC2
10th May 2005

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MR J BLACKMORE (instructed by MESSRS DARWIN GRAY) appeared on behalf of the Appellant (A3/2005/0816)
THE APPELLANT MS S DONNACHIE APPEARED IN PERSON (A2/2005/0779), (A3/2005/0778) & (A3/2005/0783)



Crown Copyright ©

    Tuesday, 10th May 2005

  1. LORD JUSTICE BUXTON: There are before the court a series of applications for permission to appeal from various aspects of a judgment delivered by HHJ Wyn Williams QC in a long and bitterly contested dispute that originated from a petition under section 459 of the Companies Act.
  2. The respondents to that petition were, first, two gentlemen called Mr Richardson and Mr Wheeler, to whom I shall refer as the first and second respondents; third, a Mr Carl Cummings; fourth, a company, Supatax 2000 Limited; and, fifth, a company (the company which was the company with which these persons were concerned), Capital Cabs Limited.
  3. There have appeared before me, first of all, Mr Blackmore of counsel who makes application for permission on behalf of the first and second respondents, emphasising as he does so that their case is quite different from that of the third, fourth and fifth respondents. Mr Cummings has appeared in person. Miss Donnachie, who is a director, at least, of Capital Cabs Limited, has spoken, as she did before the judge, both on behalf of Supatax Limited and of Capital Cabs Limited.
  4. Before the judge, the petitioner, Mr Blackmore, was represented by leading counsel, the first two respondents were represented by Mr Blackmore of counsel (as before me), Mr Cummings appeared in person, according to the judge not having attended at the earlier stages of the trial, and as I have said, Supatax and Capital Cabs were represented by Miss Donnachie.
  5. The case was long and bitterly fought. It has a lengthy and difficult background. I am not going to set out any part of the factual matters which are set out in careful detail in the judge's judgment and for the purpose of these applications are broadly agreed, although Mr Cummings complains in a way that I shall describe later of certain of the factual matters.
  6. It is not inappropriate to quote at this stage paragraph 9 of the judge's judgment in which he says this:
  7. "I should preface any review of the evidence in this case with my impression of the principal witnesses in this case. Those witnesses are the Petitioner, the first three Respondents and Miss Donnachie. The Second Respondent did not give oral evidence (due to ill-health) but he relied upon a lengthy witness statement. I regret to say that I was far from convinced that any of those persons were wholly reliable witnesses. Each was demonstrated to be unreliable by the process of cross-examination or by comparison of their evidence with contemporaneous documents. In this unhappy state of affairs I adopt the approach of accepting the evidence of the principals only when it was supported by cogent evidence or where the probabilities were strongly in its favour."
  8. I turn immediately to the grounds of appeal, taking first those that are adduced by the first and second respondents. Those are largely separate from the complaints made by Mr Cummings and by the two companies, though in at least one respect, which I shall describe shortly, they overlap.
  9. The grounds of appeal and a substantial skeleton argument by Mr Blackmore are to be found at pages 8A to C and 256 onwards of the appellate bundle. The first ground is divided into four bullet points and I shall venture to renumber those (a), (b), (c) and (d). (a) and (b) seem to me to run together. As explained to me by Mr Blackmore, and as is apparent from them, they have as their theme what is alleged to have been a misunderstanding or confusion on the judge's part; that is to say, put broadly, that he wrongly thought that the dealings in the first and second respondent's shares, of which complaint was made in the petition, could be, or were, "affairs of the company", so as to bring that dealing and those complaints within the ambit of section 459.
  10. Indeed, Mr Blackmore said that, for instance, in paragraph 86 of his judgment the judge made what Mr Blackmore described as a quantum leap because he held that the obligation of the first two respondents to act in good faith towards the petitioner in relation to their conduct of the company's affairs, an obligation that I do not understand to be, in broad terms, challenged, extended to the proposed sale of the shares to the third and fourth respondents.
  11. The contention is twofold: (1) that dealing in shares is entirely a private matter and cannot fall within the ambit of the "affairs of the company" unless the dealing is in breach of the articles of association of the company, which is not this case; or (2) is in breach of what the parties, by words or conduct, have actually agreed shall be the arrangement. Again, it is said there was no such arrangement.
  12. For these contentions Mr Blackmore relies in part on what was said in the speech of Lord Hoffmann in O'Neill v Phillips [1999] 1 WLR 1092. I, however, have been driven to the conclusion that the argument that Mr Blackmore wishes to adduce in this respect is not correctly founded because it assumes that dealing in shares can never form a ground of complaint under section 459. That is not what Lord Hoffmann said. He said, having described the background of company law as applicable in a case such as this, at the bottom of page 198:
  13. "...a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith."
  14. The judge was well aware of that requirement and indeed quoted that passage in paragraph 83 of the judgment. He was also not wrong in drawing from Gross v Rackind [2004] EWCA Civ 815, a conclusion that the "affairs of the company" encompassed an extremely wide range of matters that in an appropriate case are the concern of the company and not merely of the individual members, despite the fact that the facts of that case are very different from the facts of this case.
  15. The judge looked at the facts in this case to decide whether the normal rule enunciated by Lord Hoffmann applied in this case. He said this in paragraph 88:
  16. "In my judgment, it is impossible in the factual context of this case to separate the sale of their shares, which in itself and standing alone could be construed as the purely private business of the first two Respondents, from the steps associated with it which amounted to the conduct of the affairs of the Company. I refer, here, principally to the meetings which were called and conducted on the 23rd and 24th June 2002."
  17. Having taken that view, which in my judgement was open to the judge, I consider that he directed himself correctly on the law and directed himself on that basis in the light of the facts of this case. I do not think that those conclusions can be disturbed and I therefore would not give permission to appeal on grounds (1)(a) and (1)(b).
  18. I come to grounds (1)(c) and (1)(d) which concern the admitted forgery of a letter by the petitioner on 5th November 2001, used by him as part of the tangled affairs of this company and also, in the submission of Mr Blackmore, wrongly used by him until the matter was corrected in the actual conduct of the case.
  19. Two grounds of appeal are now sought to be asserted. The first, which is (1)(c), is that that act on the petitioner's part unilaterally altered the relationship between those parties, so that the company was no longer to be regarded as having a "quasi-partnership" company. That point was put by Mr Cummings, as the judge records in paragraph 80 of the document, and is now relied upon in ground (1)(c). So far as ground (1)(d) is concerned, more broadly it is complained that the fraudulent conduct of the petitioner, in an equitable application, disqualifies him from bringing the application at all under the well known "clean hands" doctrine.
  20. My first problem about both of these points, and certainly about the second, is whether they were taken at the trial at all. The first point, as we have seen, was taken by Mr Cummings, but does not appear to have been taken on behalf of the first and second respondents. They referred to this in a more limited way when the judge was considering the actual relief that he should grant the petitioner, and whether the conduct of the petitioner disqualified him from relief, despite what the judge had found. The judge in paragraph 112 of his judgment, recording a statement by counsel for the first two respondents which Mr Blackmore has very properly told me he did indeed make, says that it was not suggested that there should be, because of the forged letter, no relief at all.
  21. I have been troubled by that aspect of the matter, but I have concluded that it would not be right to refuse permission to appeal simply because of what happened at the trial. I shall explain in a moment the context of that and how that matter may be regarded by the full court. That said, I think that there are arguable difficulties raised by both of the points taken in ground (1)(c) (that also taken by Mr Cummings) and also ground (1)(d).
  22. In paragraph 81 of his judgment the judge said that he did not think that the forgery of the document could have the effect of unilaterally changing the nature of the relationship between the parties, and that there was no evidence that the shareholders had either expressly or impliedly agreed that the basis of their relationship should change.
  23. As to the first point, I am not satisfied that that was necessarily correct. Such an act can arguably change the nature of a quasi-partnership. I do not necessarily say it did in this case, but it can do so, as is apparent from some observations of Nourse J, as he then was, in the case In re London School of Electronics Ltd [1976] 1 Ch 211 at page 222B. I would therefore grant permission to appeal on ground (1)(c).
  24. So far as ground (d) is concerned, the judge relied (as did, he frankly says, Mr Blackmore at the trial) upon the observations of Nourse J in that same case just cited at page 222C:
  25. "... there is no independent or overriding requirement that it should be just and equitable to grant relief or that the petitioner should come to the court with clean hands."

    He was meeting there an argument put by Mr David Oliver, as he then was, that the equitable standards in relation to section 459 should be assimilated to those applying to applications for a winding up of a company on just and equitable grounds.

  26. As Mr Blackmore points out in his skeleton argument, that assumption, that the two standards are not related, is called into question by the observations of Lord Hoffmann at page 1099B of O'Neill v Phillips, observations that the judge himself in fact referred to in paragraph 78 of his judgment. If that is the case it seems to me arguable that the authority of what was said by Nourse J in the London Electronics case about section 459 applications may be open to review.
  27. I would therefore grant permission on grounds (1)(c) and (1)(d). That said, it should not be assumed, and it is not the case, that by granting permission I withhold from the full court the ability or jurisdiction to consider whether these points can be taken in any event in view of the fact that they were not taken, at least in these forms, at the trial. I exempt Mr Cummings from that, so far as ground (1)(c) is concerned, because he did take the point at the trial. So far as ground (1)(d) is concerned, Mr Blackmore very frankly told me that because of the way in which the trial developed he did not expect that the judge would find, as he did, that there was an overriding or overarching equitable right held by the petitioner and therefore attention was not directed at this aspect of the case.
  28. It will be for the full court to determine whether it is nonetheless open for this point now to be taken. I do not think that it would be right for an issue that raises serious questions about the respective equities in a case to be determined on this basis at the application stage, but it is still open in the full court.
  29. One matter, of course, that will have to be borne in mind, is whether, the matter not having been taken in this form below, the court is in any event in a position to determine the equities and the effect of what occurred, without the benefit of the specific findings of the judge about it.
  30. I turn to ground 2 which complains that the judge was wrong both in fact and in law in determining that the petitioner had been excluded from the company. That was a finding that the judge made in paragraph 89 of his judgment. I will say, shortly, that I will give permission to appeal on that ground, on the basis put by Mr Blackmore, that the judge, when he came to expound this point, did it in relation to the petitioner's defence to the claim by the company against him, which concentrated on whether what the petitioner did was effectively done in good faith, rather than, as Mr Blackmore says it should have been, upon the objective view properly taken by the company of Mr Blackmore, the petitioner's, conduct.
  31. The point does not, at this stage, admit of much further elaboration. No authority was put before me about it. Mr Blackmore said that it was, he thought, fairly self-evident, but he may well wish to look further into it before he comes to trial.
  32. Ground 3, in my view, and Mr Blackmore was constrained to agree, stands or falls with other grounds that have been ventilated. I do not think it has a separate existence.
  33. Ground 4 complains of the judge's failure to take note of an estoppel argument set out in the grounds. As I suggested to Mr Blackmore, and I find, any possibility that the judge made findings, on the basis of which he should at least have considered estoppel, is set at nought by the last part of paragraph 73 of his judgment when he says:
  34. "It seems to me to be a clear conclusion on the evidence I heard and also from my assessment of the first three Respondents that they each knew full well that there was a real likelihood that the Petitioner would object to the proposed share transfer in very strong terms and for that reason and that reason alone they decided to hide it from him until they considered that a binding agreement had been reached between them."
  35. Mr Blackmore says that the judge simply got that wrong. But, it was a finding of fact that he made, not specifically complained of as far as I can see, and it was open to him so to find. It is quite inconsistent with any question of estoppel.
  36. Ground 5 complains of the exercise of the judge's discretion under section 461 when he ordered the first and second respondents to purchase the petitioner's shares. Mr Blackmore fairly agreed that that was a matter for the judge's overall discretion in the light of the findings that he had made. I do not think that there is an arguable separate point.
  37. The upshot of that, as far as Mr Blackmore's application is concerned, is therefore that I grant permission to appeal on grounds (1)(c) and (d) and (2), and not otherwise.
  38. I turn to the application made by Mr Cummings. Mr Cummings is, of course, a layman. He suffers, he tells me, the additional handicap that his, or at least the company's documents, have been taken into custody by the local authority in pursuit of a dispute which, as far as I know anything about it, is wholly unconnected with these proceedings.
  39. I deal first with what he has said in his written grounds, and then address matters as he has explained them to me today. Taking his written grounds, he first complains that submissions relating to the Human Rights Act were not taken into account by Judge Wyn Williams. In particular, and this is a matter that he has expanded on today, that, he himself and also Supatax 2000 Ltd, were not, until a late stage, members of the company. That is a point that he has developed before me today, as I understand it saying that he has been unfairly brought into contention with matters with which he is not concerned. He has simply exercised his right to purchase shares from two gentlemen who wished to dispose of them.
  40. That, I fear, is not a valid complaint on his part, because the judge's findings were that both Mr Cummings and Supatax 2000 Ltd assumed duties as directors of the company, and thus they became involved in the company's affairs. Not only that, but they became involved with regard to the petitioner. That is particularly shown by paragraph 89 of the judge's judgment, which sets out his view of the letter that was written by the third defendant, Mr Cummings, to the petitioner on 21st June 2002; and thereafter by the management of the company. In the light of that it is not open to Mr Cummings to say that he was merely a member of the public, once he had entered into the agreement with the first and second defendants and joined the company.
  41. The second ground in his grounds of appeal is that the judgment was inconsistent with the Law Commission Report on Shareholders Remedies, as it granted the petitioner what is described as a right to "exit at will". That is not correct. Leaving aside what the Law Commission said, it is not the case, Mr Cummings is quite right on that, that section 459 grants a minority shareholder a free exit, or as it is called in, I think Lord Hoffmann's judgment, a "no-fault divorce". But here the judge did identify matters that he considered were unfair towards the petitioner.
  42. First, the negotiation between the first and second applicants, keeping that away from the petitioner.
  43. Second, barring him access to the company's premises.
  44. Third, the criticism that the judge made in his paragraph 94 of transactions which the company entered into which the judge found involved a conflict of interest with Mr Cummings and which were not reported to the members.
  45. The next complaint is that a stay of execution is asked for because it is said there is "a real and imminent danger that the Petitioner will dissipate his assets." For such an application to be made, evidence has to be produced, not just assertion, of the petitioner's likely action in that respect. There was no evidence before the judge and there is none before me. It is simply an allegation that he has disposed of a number of properties.
  46. Next is a complaint that the judge erroneously ordered the payment out of 60,000 that had been money paid by the 5th respondent, Capital Cabs Limited. I will come on to that when I deal with the application by Capital Cabs.
  47. Next, a complaint (which I think is linked to the earlier complaint that the judge did not apply the judgments in O'Neill v Phillips) with regard to protecting non-members' participation. It is said that directors' and employees' rights were confused with shareholders' and members' rights.
  48. That is not what the judge did. The observations in O'Neill v Phillips do not relate to a quasi-partnership company, such as this one. The company in that case was not such. The judge was quite clear that he was dealing with the various parties in their proper capacities as shareholders and directors. Although Mr Cummings has told me at some length this morning that the reality of this company was apparently that all the members were in fact employees of it, the structure that they chose to adopt in financial terms was that of a company, and they are bound by that.
  49. Next, the judge overvalued the company. The judge gave a fairly substantial judgment about valuation which relied upon, or referred to, expert evidence on all sides. I cannot see how it could be argued in this court that he got wrong what was essentially a matter of fact and judgement.
  50. Next, the judgment erroneously grants the right to the petitioner to be able to exercise discrimination as to who on the open market could buy shares already issued as private property despite that there was no power of veto. I think that that is a version of grounds 1(a) and (b) adduced on behalf of the first and second respondents. I have already ruled on that.
  51. Next is another statement of the complaint that Mr Cummings makes which I have dealt with earlier, that he was not a member of the quasi-partnership which this company became.
  52. Finally, a complaint of refusal to reopen the case on the basis of Royal Brompton Hospital v Hammond. That application was made to the judge. The judge pointed out in paragraph 4 of his supplementary judgment that no grounds had been put before him as to why that should be done. No grounds were put before me.
  53. Effectively, therefore, I do not grant Mr Cummings leave to appeal on any of the grounds that he includes in his appellant's notice, though he will have the benefit of the grant that I have made of permission to appeal on grounds (1)(c) and (d), an application to be made no doubt in the first instance by those instructed on behalf of the first and second respondents.
  54. I now turn to the situation of Supatax 2000 and also of Capital Cabs, the company itself. Those applications largely repeat the complaints that I have already dealt with in connection with Mr Cummings. There are, however, three matters that have to be further considered.
  55. The first, so far as Supatax is concerned, is that Miss Donnachie, who has represented them today, says that the judge was simply mistaken in thinking that Supatax was a member of the company at all. This goes back to submissions made to, and possibly decisions made by, HHJ Moseley QC which are not before me and as to which I have really very little information.
  56. Miss Donnachie says that she and her company are handicapped by the removal of the documents that I have already referred to. I am sorry to hear about that but the matter cannot be held up whilst that matter is resolved.
  57. What I will do is adjourn the Supatax application and give Miss Donnachie, or anyone else who may advise her, 21 days, and no more, from today 's date, to submit further submissions with regard to that application. That will be reserved to me and I will deal with it on paper. There will be no right of a further hearing from any decision that I make because I am already dealing with the Supatax appeal at a hearing, and it is as a concession only that I agree that it should have grounds to improve, if it can, its case.
  58. As to Capital Cabs Limited, complaint is made about the inclusion of the sum of 60,000 in paragraph 2 of the judge's order. At the moment I am not able to see that that sum was correctly included in that order. It appears to have been in court for a different purpose, and not to be paid out to the respondents under the judge's order. I therefore grant permission to appeal on that ground.
  59. Complaint is also made about the judge's costs orders in that he ordered costs in certain respects against Capital Cabs when it is said they were not responsible for some of the matters concerned. I am afraid that in a matter of this sort, heavily contested as it was, I am not prepared to interfere with that part of the judge's costs order. So I do not grant permission to appeal on that ground.
  60. An application is before the court for expedition on the part of the first and second respondents on the basis of their poor state of health, which is well documented. I am not formally going to order expedition because that does not always achieve its objective, and in any event it is not the custom to order expedition on this type of ground, hard though that may seem. However, I will direct that this appeal be heard, if possible, before 31st July. I allocate a time estimate of one day for the appeals because the issues are in fact comparatively short, even though they emerge out of a thicket of very heavy fact. The appeal should be heard by a court of three Lord Justices, one of whom at least should be a Lord Justice with experience in company law.
  61. ORDER: applications granted save for application A3/2005 0777 which was refused and A3/2005/0778 which was adjourned; time estimate one day for appeals; to be heard by three Lord Justices, one of whom to have experience in company law.

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