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To read into the words information held for purposes other than those of journalism, art or literature a need to evaluate whether such purposes were dominant seems to me unjustified. Ratio |
I share Lord Walkers view (para 79) that the real emphasis of the words is on what is not disclosable, so that the exemption applies, without more, if the information is held for any journalistic, artistic or literary purpose. Ratio |
That conclusion is to my mind also fortified by consideration of the exemption relating to certain functions of the Bank of England. Ratio |
Lord Phillips discusses the position regarding archived material. Ratio |
We were not given any clear picture when or on what basis archiving might occur. Ratio |
I assume that the reference is to material not envisaged as having any current purpose, but stored for historical purposes or against the possibility of some unforeseen need to revisit, or produce evidence of, past events. Ratio |
A library maintained for current reference would in contrast contain material held for the purposes of journalism, art or literature. Ratio |
I agree with Lord Browns analysis of the current state of Strasbourg authority, and also with Lord Wilsons comment in para 59 on the decisions (or dicta) in Ullah and Al-Skeini. RPC |
Nothing in the Strasbourg jurisprudence calls us to do anything but give effect in this case to what we consider to be the proper construction of the 2000 Act under ordinary domestic principles. RPC |
It is unnecessary to say more, or to add to recent debate about the nature of the Convention rights in the United Kingdom or the domestic courts role in interpreting and applying them taking into account any relevant Strasbourg case-law. RPC |
I agree with Lord Browns analysis of the current state of Strasbourg authority, and also with Lord Wilsons comment in para 59 on the decisions (or dicta) in Ullah and Al-Skeini. RPC |
Nothing in the Strasbourg jurisprudence calls us to do anything but give effect in this case to what we consider to be the proper construction of the 2000 Act under ordinary domestic principles. RPC |
It is unnecessary to say more, or to add to recent debate about the nature of the Convention rights in the United Kingdom or the domestic courts role in interpreting and applying them taking into account any relevant Strasbourg case-law. RPC |
A limited company not in liquidation cannot lawfully return capital to its shareholders except by way of a reduction of capital approved by the court. Ratio |
Profits may be distributed to shareholders (normally by way of dividend) but only out of distributable profits computed in accordance with the complicated provisions of the Companies Act 2006 (replacing similar provisions in the Companies Act 1985). Ratio |
Whether a transaction amounts to an unlawful distribution of capital is not simply a matter of form. PRE |
As Hoffmann J said in Aveling Barford Ltd v Perion Ltd [1989] BCLC 626, 631, Whether or not the transaction is a distribution to shareholders does not depend exclusively on what the parties choose to call it. PRE |
The court looks at the substance rather than the outward appearance. PRE |
Similarly Pennycuick J observed in Ridge Securities Ltd v Inland Revenue Commissioners [1964] 1 WLR 479, 495, A company can only lawfully deal with its assets in furtherance of its objects. PRE |
The corporators may take assets out of the company by way of dividend, or, with the leave of the court, by way of reduction of capital, or in a winding-up. PRE |
They may of course acquire them for full consideration. Ratio |
They cannot take assets out of the company by way of voluntary distribution, however described, and if they attempt to do so, the distribution is ultra vires the company. Ratio |
The sole issue in this appeal is whether there may have been an unlawful distribution of capital when the appellant company, Progress Property Company Ltd (PPC), sold the whole issued share capital of a wholly-owned subsidiary, YMS Properties (No. 1) Ltd (YMS1) to another company, Moorgarth Group Ltd (Moorgarth). Ratio |
All these companies were indirectly controlled by Dr Cristo Wiese, a South African investor. Ratio |
The facts have not yet been fully established, which is why the issue must be stated in this inconclusive way. Ratio |
PPC was originally called Tradegro (UK) Property Holdings Ltd and has since changed its name to BLN Property Company Ltd. Moorgarth was originally called Foldfree Ltd. But it is simplest to use the names used by Mummery LJ in his judgment in the Court of Appeal. FAC |
The transaction between PPC and Moorgarth has been vigorously attacked by the appellant PPC on the ground that it was (as must be assumed for the purposes of this appeal) at an undervalue (PPC says, a gross undervalue). Ratio |
YMS1, a company whose net assets might on PPCs most ambitious case have been worth as much as 4m, was sold for little more than 60,000. Ratio |
But the attack has been stoutly resisted on the ground that (as is now no longer in dispute) Mr Cornus Moore (Dr Wieses right-hand man, and a director of both PPC and Moorgarth) genuinely believed that the sale of the shares in YMS1 was at market value. Ratio |
It is also to be assumed for the purposes of this appeal that Mr Moore was in breach of duty in failing to realise that the transaction was in fact a sale at an undervalue. Ratio |
Had this appeal been allowed, the correctness of these undetermined assumptions (and also issues of valuation and quantum) might have had to be decided in further proceedings. Ratio |
The facts FAC |
The scale of the undervaluation alleged by PPC, in a transaction negotiated between experienced businessmen advised by experienced surveyors, solicitors and accountants, is truly remarkable. FAC |
It suggests that the circumstances were such as to call for close enquiry; and the deputy judge, Mr David Donaldson QC, did enquire into them closely in the course of a fourteen-day trial of this action (together with two other actions in which there has been no appeal). FAC |
The deputy judges task in fact-finding was difficult, as he found Mr Charles Price, the individual indirectly interested (as a minority shareholder in PPC and as prospective purchaser of the majority holding) in the disposal of the YMS1 shares, to be an unreliable witness. FAC |
PPCs failure to call as a witness its solicitor, Mr Gerber, added to the deputy judges difficulties in making full and clear findings of fact. FAC |
He dismissed the action on the basis that it could not succeed even if there had been an unintentional sale at an undervalue, and even if Mr Moore was in breach of duty in failing to recognise it. FAC |
The Court of Appeal (Mummery, Toulson and Elias LJJ) [2009] EWCA Civ 629, [2010] 1 BCLC 1 unanimously upheld the deputy judges dismissal of the action. FAC |
In doing so Mummery LJ (with whom Toulson and Elias LJJ concurred) did not find it necessary to go far into the factual circumstances. FAC |
He summarised the essential facts with admirable brevity in paras 6 and 12 of his judgment: The sale and purchase agreement was made on 20 October 2003 at an agreed price of 63,225.72. FAC |
The sale price was calculated on the basis of the open market value of the YMS1 properties (11.83m), from which there was subtracted liabilities for creditors approaching 8m and the sum of 4m in respect of a repairing liability. FAC |
The subtraction of 4m was made in the belief that PPC had given an indemnity or counter-indemnity under which that liability would ultimately fall on PPC. FAC |
As part of the transaction that liability of PPC was to be released. FAC |
In fact, it turned out that there was no such indemnity liability and there was nothing from which PPC could be released. FAC |
In consequence there was no 4m to subtract from the value of the YMS1 properties. FAC |
There was no justification for the reduction in the sale price. FAC |
So it was said that the sale of the shares was at a gross undervalue. . . . FAC |
There was no dispute before the deputy judge that Mr Moore genuinely believed that the price of the shares in YMS1 sold by PPC to Moorgarth was their market value. FAC |
It was not alleged that there was any intention on his part to prefer Moorgarth or to commit a fraud on the creditors of PPC. FAC |
He acted in the honest belief that the sale of the shares in YMS1 was a commercial transaction. FAC |
I am reluctant to expand on Mummery LJs summary unless there is a good reason to do so. Ratio |
But in an appeal which is centrally concerned with the substance and reality of the impugned transaction, I think it is appropriate to set out some of the deputy judges findings of fact in rather more detail. Ratio |
They help to answer some (but not all) of the questions prompted by Mummery LJs summary. Ratio |
At the material time (roughly April to October 2003) Dr Wieses investments included interests in the value (or down-market) sector of the United Kingdom retail market. FAC |
He indirectly controlled (through Brown & Jackson Plc B & J) two retail chains, Poundstretcher and Your More Store. FAC |
These businesses (especially Your More Store) were not flourishing, and in the early months of 2003 he took various steps intended to improve their prosperity. FAC |
Your More Store Limited (YMS), which ran Your More Store and two other retail businesses, became a subsidiary of Tradegro (UK) Ltd (Tradegro), another company controlled by Dr Wiese. FAC |
Mr Carel Stassen was appointed as managing director of YMS and became a minority shareholder in YMS. FAC |
Mr Price was appointed as managing director of PPC, which was at that time a wholly-owned subsidiary of Tradegro. FAC |
Mr Price became the holder of 24.9% of the shares in PPC, leaving Tradegro with 75.1%. FAC |
The freehold interest in the Your More Store premises was vested in a company called YMS Properties (No. 2) Ltd (YMS2). FAC |
YMS2 was a wholly-owned subsidiary of YMS1, which was a wholly-owned subsidiary of PPC. FAC |
In the short term YMS continued to occupy its retail premises informally, without any leases from YMS2. FAC |
There was a similar reorganization of the Poundstretcher business. FAC |
YMSs informal occupation of the retail premises did not last long. FAC |
An essential part of Mr Prices task was to manage and raise finance from YMS2s property portfolio. FAC |
Mr Price embarked on negotiations with Nationwide Building Society (Nationwide) and on 2 May 2003 Nationwide entered into a facilities agreement to advance funds of more than 20m secured on the YMS and Poundstretcher freeholds. FAC |
But Nationwide insisted that formal leases, with tenants covenants including full repairing and insurance obligations, should be entered into between YMS2 as landlord and YMS as tenant and between the corresponding Poundstretcher companies. FAC |
The deputy judge summarised the resulting situation in paras 8 and 9 of his judgment: This posed a problem. FAC |
The properties in the portfolio, and in particular those occupied by YMS, were in significant disrepair. FAC |
A survey produced by independent surveyors GRD in early 2003 estimated the existing cost of repairs to the YMS properties at more than 4.6m. FAC |
YMS, whose trading position was already parlous, was in no position to shoulder a liability of this magnitude, and Mr Stassen refused to agree. FAC |
Moreover, the execution of FRI leases would at a stroke bring about a substantial increase in the value of the [freeholds the judge wrote leases but this must have been a slip] compared with the vacant possession value at which they currently stood in the books of YMS1. FAC |
As all parties recognised, commercial logic and indeed fairness required that the costs of this benefit should not rest with YMS. FAC |
It might be that no serious problem would arise so long as both the freeholds and YMS remained within the [Tradegro] group (though a question might still be posed as a result of the minority interests of Mr Stassen and Mr Price in, respectively, YMS and PPC), but that position was always open to change. FAC |
In the event, YMS did sign FRI leases. FAC |
Mr Stassen did not however agree to this course until he had obtained an assurance from Mr Moore, with the approval of Dr Wiese, that YMS would be given an indemnity against the costs it might be required to incur in satisfying the repairing liability. FAC |
At that stage there was a falling out between Mr Price and Dr Wieses management team, and in July 2003 Dr Wiese gave six months notice to terminate the arrangements with Mr Price. FAC |
But during the next two months there were negotiations which led to an agreement for Mr Price to acquire Tradegros 75.1% shareholding in PPC. FAC |
The agreed terms were quite complex and were embodied in a share purchase agreement (the SPA), the parties to which were (1) Wigmore Street Investments Ltd (WSIL), then called Real Estate Property Corporation Ltd, a Bermuda company controlled by Mr Price, as purchaser and (2) Tradegro as vendor. FAC |
The dispute in this appeal is not concerned with the sale of the PPC shares themselves, but with a preliminary step provided for in clause 4.1 of the SPA, that is, the sale by PPC, before completion of the SPA, of the whole share capital of YMS1 to Moorgarth (a direct subsidiary of Tradegro). FAC |
The deputy judge commented (in para 12 of his judgment) on how matters stood as the negotiations progressed: Since ownership of the freeholds would now move out of the [Tradegro] group, it became imperative to honour Mr Moores assurance to Mr Stassen that YMS would be given an indemnity against the FRI liability. FAC |
Logic also suggested that in the new circumstances the ultimate liability should pass to the new owner of YMS2. FAC |
Consistent with this, the running document entitled Summary of principal commercial terms passing between the parties indicated that (1) a deed of indemnity was being discussed between Tradegro and YMS (2) there was broad agreement on the provision of a counter-indemnity by PPC. FAC |
The same applied to the [Poundstretcher] properties. FAC |
His comment about what logic suggested must have been directed at the position before the change of plan (embodied in clause 4.1 of the SPA) to extract the YMS freeholds from PPC before the sale of its shares was completed. FAC |
There would have been no logic in PPC accepting ultimate responsibility for an unquantifiable liability for repairs to dilapidated YMS properties that it was not going to own. FAC |
What happened instead, and gave rise to the issue in this appeal, was the extraction of the YMS freeholds by the sale of YMS1 by PPC to Moorgarth at the price of 63,225.72. FAC |
This took place under a simple written agreement entered into on 20 October 2003. FAC |
It was negotiated mainly by two solicitors, Mr Gerber instructed by Mr Price on behalf of PPC and Mr Emmett instructed by Mr Moore on behalf of Moorgarth. FAC |
The agreement was signed by Mr Paul Clarke (who was a director of both PPC and Moorgarth) on behalf of both companies. FAC |
He signed it after a board meeting of the directors of PPC attended by Mr Clarke in person and by Mr Price by telephone. FAC |
On the same day Tradegro and its overseas holding company gave a formal release of PPC from any possible liability under the supposed indemnity or counter-indemnity. FAC |
That liability had never actually come into existence, though it had been much discussed. FAC |
The deputy judges judgment (paras 13 to 31) gives a detailed account of the fairly hectic negotiations leading up to 20 October 2003, and of the events of that day. FAC |
That is for the present sufficient, and perhaps more than sufficient, as to the factual findings made at first instance in relation to the issue of sale at an undervalue. FAC |
To recapitulate, that there was a sale at an undervalue is an undetermined assumption made for the purposes of this appeal, as is Mr Moores breach of duty, but his genuine belief in an arms length sale is common ground. FAC |
I shall return to the facts briefly at the end of this judgment. FAC |
The authorities STA |
PPCs case, as finally formulated at first instance, relied not on section 263 of the Companies Act 1985 (now replaced by sections 829 and 830 of the Companies Act 2006) but on what Mummery LJ referred to (para 23) as the common law rule: The common law rule devised for the protection of the creditors of a company is we... |
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