BOWTHORPE HOLDINGS LIMITED YASAIWA SECURITIES LIMITED v R. J. HILLS AND OTHERS [2002] EWHC 2331 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
[2002] EWHC 2331 (Ch)Case No Case No: HC 02C00180Venue Royal Courts of Justice, Strand, London, WC2A 2LL
Between
BOWTHORPE HOLDINGS LIMITED YASAIWA SECURITIES LIMITEDClaimantsR. J. HILLS AND OTHERSDefendants
Before
THE VICE-CHANCELLORAnthony de Garr Robinson (instructed by Messrs Herbert Smith) for the ClaimantsMichael Briggs QC and John Whittaker (instructed by Messrs Denton Wilde Sapte) for the DefendantsHearing dates : 22nd and 23rd October 2002Date 8 November 2002
[1]The Vice-Chancellor : Introduction Argyll Investment Management Ltd (“Argyll”) was incorporated in England in September 1993 to carry on the business of investment management. Article 7 of its Articles of Association contains provisions requiring a member who intends to transfer a share first to offer it at a specified price to all other members. At all material times about 70% of the issued share capital of Argyll was registered in the name of the second claimant (“Yasaiwa”), the remaining 30% was registered in the name of the first defendant Richard Hills (“Richard Hills”) or a trust associated with his family.[2]Yasaiwa was incorporated in the Bahamas in November 1993. Its only shareholder was the second defendant, Peter Hills (“Peter Hills”), a brother of Richard Hills. By an agreement dated 16th December 1993 (“the Option Agreement”) made between Peter Hills and the first claimant (“Bowthorpe”) Peter Hills granted to Bowthorpe an option to acquire, amongst other items, his shares in Yasaiwa. Bowthorpe was incorporated in the Bahamas and was and is controlled by Raymond Haas and Selwyn Haas (respectively “Raymond Haas” and “Selwyn Haas”).[3]By April 1998 the commercial relationships between Raymond Haas and Selwyn Haas on the one hand and Richard Hills and Peter Hills on the other had broken down. On 17th April 1998 Peter Hills issued notices convening on 24th April meetings of the members and directors of Yasaiwa for the purpose of issuing a transfer notice in accordance with article 7 of Argyll’s Articles of Association offering the shares in Argyll owned by Yasaiwa for sale at not less than par to the other members of Argyll, namely Richard Hills and the Hills family trust.[4]Bowthorpe responded on 20th April. Its sole director Richard Scott (“Richard Scott”) gave notice to Peter Hills to exercise the option to acquire the latter’s shares in Yasaiwa. In addition he completed the undated blank share transfers and other documents executed by Peter Hills with various dates in October 1997. The date for completion fixed by the terms of the Option Agreement was the seventh day after service of the notice by which it was exercised, that is 28th April.[5]The meetings of the members and directors of Yasaiwa were duly held on 24th April 1998. A transfer notice in respect of Yasaiwa’s shares in Argyll and specifying par as the value thereof was duly given on that day and accepted by Richard Hills on 27th April. The consequential registration of Richard Hills as the holder thereof was made on 9th July 1998.[6]On 28th April 1998 Bowthorpe and Yasaiwa commenced proceedings in both the Bahamas and England (respectively “the First Action” and “the Second Action”) seeking, primarily, specific performance of the Option Agreement and damages for breach of the duties arising therefrom. On the same day it obtained interim injunctions in both jurisdictions restraining the directors of Yasaiwa from acting on its behalf. These claims were advanced on the basis that the share transfers and other documents relating to Yasaiwa executed by Peter Hills in blank had been properly completed on the dates they bore, namely October 1997, so that control of Yasaiwa had changed at that time.[7]In due course it emerged that that was not so and all injunctions were discharged in both jurisdictions. Bowthorpe’s claim in the Bahamas, but not that of Yasaiwa, proceeded to trial. By an order of Osadebay J dated 22nd October 1999 Peter Hills was required specifically to perform the Option Agreement on the footing that the option had been duly exercised on 20th April 1998, beneficial ownership in the shares in Yasaiwa had passed from Peter Hills to Bowthorpe on that day and that Peter Hills was entitled to the rights but subject to the obligations of an unpaid vendor. The Option Agreement was duly performed in accordance with that order. Bowthorpe was registered in respect of the shares in Yasaiwa in June 2000. The board of directors was reconstituted on 22nd August 2000 when Richard Scott and his associates replaced Peter Hills and his associates.[8]On 22nd January 2002 the claim form in this action (“the Third Action”) was issued. The claimants are Bowthorpe and Yasaiwa. The defendants are Richard Hills, Peter Hills and the former’s wife (collectively “the Hills”) and the present holders of the shares in Argyll acquired by Richard Hills from Yasaiwa in 1998. In broad terms the relief sought is rescission of the sale of the shares in Argyll formerly held by Yasaiwa and damages for breach of duty, fiduciary or contractual, and for conspiracy. The application now before me was issued by the Hills on 18th April 2002. They seek orders under CPR Rules 3.4(2) or 24.2 striking out or summarily dismissing all the claims made against them by either Bowthorpe or Yasaiwa on the grounds that they constitute an abuse of the process as an attempt to relitigate matters which either were or should have been litigated in the First Action or which have no reasonable prospect of success.[9]Thus the issues for my determination are whether the Third Action is an abuse of the process or to the extent that it is not whether the claims made therein have a reasonable prospect of success. But, whilst the outline facts and the issues may be simply stated, the full facts and arguments with which I must deal are a good deal more complicated. The Facts[10]In 1993 Raymond Haas and Selwyn Haas were the co-chairmen of the Trident Trust Group of companies. Richard Hills was an investment fund manager. His brother, Peter Hills, was professor of urban planning in Hong Kong University. Raymond Haas and Richard Hills met for the first time in London on 18th June 1993. Thereafter they discussed and agreed what was later described in the First Action as a scheme and in the Third Action as a joint venture, the elements of which may be summarised as follows: a) a fund management business should be established comprising an onshore investment advisory and management company (Argyll) and an offshore management company (Guardian Global) in which Bowthorpe would hold 85% and Richard Hills 15%; b) all the shares in Guardian Global should be held by Guam Holdings Ltd, a Bahamian company; c) 15% of the shares in Guam should be held by Newstead, an off-shore company owned by the Churton Trust, a Hills family trust, the remaining 85% by Bowthorpe; d) the shares in Argyll should be held as to 15% by Richard Hills and the remaining 85% by Yasaiwa; e) Yasaiwa should be owned by Peter Hills so as the more quickly to obtain IMRO approval to the control of Argyll but subject to an option in favour of Bowthorpe.[11]The scheme was implemented by the incorporation of Argyll and Yasaiwa in September and November 1993, the issue of shares as envisaged and a number of other agreements made in December 1993 namely: a) a service agreement (“the Service Agreement”) dated 10th December 1993 between Argyll and Richard Hills whereby the former was to employ the latter as managing director on the terms therein contained; b) an oral agreement whereunder Bowthorpe lent Peter Hills £90,000 to enable him to lend the same sum to Yasaiwa for it to use in subscription for shares in Argyll and associated expenses; c) a loan agreement (“the Loan Agreement”) whereunder Peter Hills lent £90,000 to Yasaiwa repayable on demand or upon the sale of Yasaiwa’s investment in Argyll; d) the Option Agreement whereby Peter Hills granted to Bowthorpe the option exerciseable by notice in writing to buy his 85 shares in Yasaiwa and the benefit of the loan of £90,000 by him to Yasaiwa pursuant to the Loan Agreement for £90,100. In addition to executing these documents Peter Hills lodged with Yasaiwa his resignation as a director of Yasaiwa, transfers of his 85 shares in Yasaiwa together with the relevant bearer share certificates and an assignment of the benefit of the loan from him to Yasaiwa pursuant to the Loan Agreement, in each case, signed by him but undated.[12]On 22nd February 1994 an agreement for investment management and investment advisory services was concluded between Argyll and Guardian Global. Further shares in Argyll were issued in September and December 1995 and September 1996 with the consequence that from the latter date the issued capital of Argyll was £185,000 of which 70% was held by Yasaiwa and the remaining 30% by Richard Hills or a Hills family settlement or company.[13]At a meeting of the directors of Argyll held on 13th February 1997 Richard Hills, Peter Hills and John Chappell, another director of Argyll, approved amendments to the Service Agreement originally proposed by Richard Hills at a meeting of the directors of Argyll held on 22nd January 1997. The purpose of the amendments was to increase Richard Hills’s remuneration and, to quote the minute of the meeting, to provide that “in the event of a hostile acquisition of control of [Argyll] he [Richard Hills] should have the option to leave [Argyll] with the benefit of compensation for loss of office without being subject to any undue restraints other than normal obligations not to solicit clients or staff.” Richard Hills did not disclose to Raymond Haas either the proposal or the approval at meetings between them which took place on 31st January, 14th February or 14th July 1997.[14]In and after September 1997 there were meetings between Raymond Haas and Richard Hills at which consideration was given to alterations of the arrangements between them including an exercise by Bowthorpe of the option to acquire Peter Hills’s shares in Yasaiwa. The negotiations reached so advanced a stage that on 25th March 1998 Richard Hills’s solicitors informed those for Bowthorpe that the proposed amendments were approved and ready for execution.[15]As I have already indicated, on 17th April 1998 Peter Hills convened meetings of the members and directors of Yasaiwa in his respective capacities as the only shareholder or a director. Such meetings were to be held on 24th April 1998 in the offices of Peter Hills’s solicitors in Nassau, Bahamas. The meeting of the members was to consider the appointment of Mesdames Lashley and McCartney of such solicitors as new or additional directors. The meeting of the directors was to consider the value of Yasaiwa’s shares in Argyll and the issue of a transfer notice in respect of them for sale at a price not lower than any previous valuation. Peter Hills appointed Mr Jeremy Meredith-Davies as his proxy and alternate director.[16]As I have also already indicated, the response of Bowthorpe came on 20th April 1998. By a letter of that date Richard Scott gave notice to Peter Hills to exercise the option granted to Bowthorpe by the Option Agreement. He specified 5.45pm on 28th April and an address in Cyprus as the time and place for completion. He dated the documents executed by Peter Hills in blank 1st October 1997 in the case of the resignation as a director of Yasaiwa and 3rd October 1997 in the case of the transfers. Having, as he thought, so procured Peter Hills’s resignation as the sole remaining director of Yasaiwa Richard Scott then resolved to amend the Articles of Association of Yasaiwa to provide that there should be only one director removable only with cause by a resolution of the members of which 10 days notice of an intention to move had been given to the director.[17]Thereafter solicitors instructed by Richard Scott and purporting to act for Yasaiwa wrote to Peter Hills, his Bahamian lawyers, Mr Meredith-Davies and Richard Hills contending that as Peter Hills had ceased to be a director with effect from 1st October 1997 by reason of his resignation and had ceased to be a shareholder on 3rd October 1997 pursuant to the transfer of his shares Peter Hills had had no authority to convene the meetings of the members or directors of Yasaiwa. They sought undertakings that Peter Hills would not act as a director of Yasaiwa and that the others would not rely on any authority he might have had if Peter Hills had been such a director. Solicitors for Peter Hills responded on 23rd May by denying that Peter Hills had given any authority for the documents to be dated or acted upon. On the same day Richard Hills informed the directors of Yasaiwa that IMRO would regard his resignation as managing director of Argyll in an unfavourable light. He suggested that in such event the regulated status of Argyll and its consequential authority to carry on investment business might be withdrawn.[18]The meetings of the members and directors of Yasaiwa duly took place in Nassau, Bahamas on 24th April 1998. At the former it was resolved to remove Richard Scott and to confirm the appointment of Peter Hills as a director of Yasaiwa and to appoint Mesdames Lashley and McCartney as additional directors. The letter from Richard Hills to which I have referred in paragraph 17 above was tabled. The meeting considered that “either of those consequences [ie resignation of Richard Hills or withdrawal of regulated status] would have a seriously detrimental effect on this company’s sole asset, namely its 70% shareholding in [Argyll]. Accordingly it is resolved to instruct the directors to issue to the directors of Argyll an irrevocable transfer notice in accordance with article 7 of Argyll’s articles of association for which purposes the specified price should not be less than the par value of the Argyll shares.” At the meeting of the directors of Yasaiwa held later that morning attended by Mr Meredith-Davies and Mesdames Lashley and McCartney the directors resolved to issue such a notice and to specify therein “a price of £1 per share”. In addition they resolved to execute blank transfers in respect of Yasaiwa’s shares in Argyll and that the price payable of £129,500 should be paid to the Bahamian Solicitors to be applied by them in repaying £90,000 to Peter Hills or Bowthorpe and as to the balance in discharging the expenses of the sale and any other debts of Yasaiwa. As I have already indicated the offer of the shares in Argyll made in accordance with article 7 was accepted by Richard Hills on 27th April 1998. The sale of Yasaiwa’s shares in Argyll to Richard Hills was completed by registration on 9th July 1998.[19]Before I refer to the claims in and course of the First Action and the Second Action I should touch on various subsequent events. On 29th April 1998 Richard Hills signed the accounts of Argyll for the year ended 31st December 1997. They showed that Argyll had funds under management of £62m, had made a profit for the year on ordinary activities before taxation of £102,112 and had net assets of £166,521. On 20th May 1998 Richard Scott made a witness statement in which he acknowledged that on 20th April 1998 he had back-dated the documents executed by Peter Hills in blank with dates in October 1997. In discharging the interim injunctions made in England Rimer J described Richard Scott’s conduct as “an unsubtle and dishonest plan to outmanoeuvre Professor Hills”. He considered that Richard Scott had “resolved to deceive the court as well” and refused to grant any relief. On 14th June 1998 Richard Scott redated the documents, presented them to Yasaiwa for completion of the sale of the Yasaiwa shares in accordance with the Option Agreement. The First Action[20]The First Action was instituted in the Bahamas by a writ issued on 29th April 1998 by Bowthorpe, Yasaiwa and Richard Scott. The defendants were Peter Hills, Mr Meredith-Davies, Mesdames Lashley and McCartney, Argyll, Richard Hills and his wife. For reasons which are not entirely clear by order of the Bahamian Court made on 14th September 1998 Yasaiwa was struck out as a plaintiff; it was not added as a defendant. An amended statement of claim was served by Bowthorpe on 9th July 1998. A statement of claim was also served by Richard Scott on 11th September 1998 but as nothing turns on it I will not refer to it again.[21]The amended statement of claim explained the relationship of the parties and others, referred to the oral and written loan agreements, the Option Agreement and the undated assignment of the benefit of the loans. In paragraph 12 it averred the exercise of the option and continued in paragraph 13:
“As from 20 April 1998 (the date of the exercise of the Option) [Peter Hills] was under a duty not to act in relation to the Shares [defined as the shares in Yasaiwa] so as to cause unjustifiable damage to the interests of Bowthorpe.”
[22]The events of 24th April 1998 were pleaded in paragraphs 14 and 15. In paragraph 16 a. it was alleged that “In acting or causing his alternate to act as pleaded in paragraphs 14 and 15 above [Peter Hills] intended to remove Yasaiwa’s most important asset (i.e. its shareholding in Argyll) from Yasaiwa. In doing so [Peter Hills] acted in breach of his duty not to act in relation to the [Yasaiwa] Shares so as to cause unjustifiable damage to the interest of Bowthorpe.”[23]In the rest of the amended statement of claim Bowthorpe claimed that(1) Peter Hills had not been entitled to vote as a member and that neither his alternate nor Mesdames Lashley and McCartney had been entitled to act as directors;(2) The Option Agreement had been completed in accordance with the redated documents;(3) In so far as it had not been so completed there should be an order for specific performance and(4) “By reason of the matters alleged Bowthorpe has suffered loss and damage”. The prayer for relief sought “Damages for any loss or injury done to or suffered by Bowthorpe as a result of any actions taken by [Peter Hills], Ms Lashley, Ms McCartney, Mr Meredith-Davies or [Richard Hills].”[24]In paragraph 15 of the defence of all the defendants paragraph 16 a of the amended statement of claim was specifically denied on the ground that Peter Hills had reasonable ground to assume that if Bowthorpe acquired control of Argyll Richard Hills would resign as managing director and IMRO would withdraw its regulatory approval. In paragraph 31 they specifically denied the allegation that Bowthorpe had suffered loss and damage and put Bowthorpe to strict proof thereof.[25]The trial of the action took place before Osadebay J on 26th and 28th July 1999 on the basis of the affidavit evidence of Richard Hills, Richard Scott, Raymond Haas and Selwyn Haas adduced in support of the application for interim relief and otherwise. The opening submissions for Bowthorpe show that the duty relied on was that of an unpaid vendor under an enforceable contract for the sale of land or other property. It was submitted that there could be no clearer example of a breach of that duty than the attempt of Peter Hills to transfer Yasaiwa’s most important asset, i.e. the shares in Argyll, for his or his family’s private benefit. With regard to the defence that the price was fair in all the circumstances it was submitted that there was nothing to suggest that par was a fair value, rather, it was contended, the absence of any negotiation underlined the fact that the price for the Yasaiwa shares was not fair.[26]This was disputed in the opening written argument for the defendants. With regard to the claim for damages it was contended that the loss of Yasaiwa’s shares in Argyll had not been alleged to constitute the loss and was not in fact because a proper price had been paid. The transcript of the oral argument contains only fleeting references to the point. Thus on Day 1 page 42 Counsel for Bowthorpe describes the consequence of the removal of the sole asset from Yasaiwa as “depleting it of any value”. At page 50 on the same day Counsel for the defendants observed that there was nothing to prevent Yasaiwa from selling its assets so long as it got proper value for them. At the commencement of the hearing on Day 2 Counsel for Bowthorpe informed the judge that the parties agreed that there was no need to cross-examine any deponent on his affidavit. This was on the basis that two allegations made by the defendants were withdrawn. The question of loss or damage to Bowthorpe was not adverted to at all on Day 2. Nor was the issue of loss or damage addressed in the closing written submissions for Bowthorpe. The closing written submissions of the defendants merely repeated verbatim the submissions made in the opening written submissions.[27]Osadebay J gave judgment on 22nd October 1999. After setting out the material facts he referred to the submissions for Bowthorpe in terms which contain no reference to any allegation of loss or damage sustained by Bowthorpe. His summary of the submissions of counsel for the defendants records a submission that any loss or damage sustained by Bowthorpe must have been special damages of which there was no pleading or proof. The judge then considered whether the option had been validly exercised. He concluded that it had been so that as from 21st April 1998 there was a contract for the sale of the shares in Yasaiwa by Peter Hills to Bowthorpe. He also decided that on 24th April 1998 Peter Hills was still the sole legal owner and owed to Bowthorpe duties of care comparable to those referred in Clarke v Ramuz [1891] 2 QB 456 , 459 and Lysaght v Edwards [1876] 2 Ch.D.499, 507 so that “..any attempt by the defendant, Peter Hills, to dispose of those shares [sc. the shares in Yasaiwa] in a manner inconsistent with his obligations under the Contract of Sale resulting from the exercise of the option granted under the Option Agreement...may amount to a breach of contract.”[28]The judge then considered the extent to which the contract had been performed. He decided that non completion was the fault of Bowthorpe from which it should not be permitted to obtain any advantage but that the court might grant specific performance to a purchaser in default. He concluded “For the reasons I have given above...I have come to the conclusion that, except for an Order for specific performance of the Agreement for the purchase of the said shares of Yasaiwa resulting from Bowthorpe's exercise of the option.., the Plaintiffs are not entitled to any of the declarations, damages or injunctive relief sought in their Statement of Claim. I find however that a valid contract for the sale of the said shares of Yasaiwa resulting from Bowthorpe's exercise of the option by its notice given to Peter Hills on the 20th April, 1998, still subsists but uncompleted in accordance with the terms of the agreement and that Bowthorpe has acquired the beneficial interest in the shares in equity subject to the Vendor's lien. Peter Hills remains unpaid as the vendor of the shares and has remained on the register notwithstanding the contract for sale. He therefore retains vis-à-vis Bowthorpe the prima facie right to vote in respect of the shares until he is paid and sale completed, the transfers executed and Bowthorpe entered on the Company's register of shareholders.” The judge made orders by way of specific performance of the contract as found by him and made declarations as to who were the directors and which resolutions had been validly passed. The Second Action[29]The Second Action was ancillary to the first. The plaintiffs were Bowthorpe, Yasaiwa and Richard Scott. The defendants were Argyll, Richard Hills and his wife. The relief sought under s.25 Civil Jurisdiction and Judgments Act 1982 were injunctions to restrain the defendants from acting on any instructions from Yasaiwa by the agency of Peter Hills, Mesdames Lashley and McCartney or Mr Meredith-Davies. Such injunctions were granted on 28th April 1998 and discharged on 22nd May 1998, in each case, by Rimer J. It is not suggested that the Second Action gives rise to any issues not already raised by the First Action. The Third Action[30]As I have already indicated the Option Agreement was finally completed in 2000 by the registration of Bowthorpe as the proprietor of the shares in Yasaiwa and the reconstitution of the board of directors of Yasaiwa by the replacement of Peter Hills and his associates with Richard Scott and his associates. On 5th December 2000 new solicitors for Bowthorpe, Herbert Smith, wrote to Richard Hills “in relation to the purported sale to you on or about 6th July 1998 of Yasaiwa’s shareholding in Argyll for a consideration of £129,500”. They claimed that the consideration, the par value, was substantially below market value and was a blatant attempt to frustrate the exercise of Bowthorpe’s option to acquire Peter Hills’s shares in Yasaiwa. They contended that Yasaiwa’s only asset had been dissipated thereby rendering Bowthorpe’s option valueless. They demanded the return to Yasaiwa of the shares in Argyll.[31]In the event the Third Action was not commenced until 22nd January 2002. In the meantime, by a letter dated 20th April 2001 Richard Hills’s solicitors disclosed full details of the amendment to his service agreement with Argyll agreed at the meeting held on 13th February 1997. There had been earlier references to the fact and nature of the amendments (in particular in a letter from Richard Hills to Peter Hills and copied to Richard Scott dated 20th April 1998, paragraph 24 of the affidavit of Richard Hills sworn in the First Action on 14th May 1998 and paragraph 18 of the affidavit of Richard Hills sworn in the First Action on 25th June 1999) but this was the first time the Amended Service Agreement and relevant board minutes had been disclosed. Further the business of Argyll was sold in August 2001 to Progressive Alternative Investment Ltd for £100,000 and the assumption by the buyer of the obligation of Argyll to repay £125,000 lent by a sister company of the buyer.[32]As I have said the claim form in the Third Action was issued on 22nd January 2002. The claimants are Bowthorpe and Yasaiwa. The defendants include Richard Hills, Peter Hills and Richard Hills’s wife. The claims are described as being for “breach of fiduciary duty, breach of contract, conspiracy to injure and unlawful interference in relation to a series of written and oral agreements entered into between 1993 and 1994. As a result of the said conduct the Claimants have suffered substantial loss and damage and in the circumstances are entitled to damages and other relief arising out of the defendants conduct.” It is apparent from paragraphs (1),(2),(4) and (5) that the specific relief sought is the recovery by Yasaiwa of the shares in Argyll ostensibly sold to Richard Hills in April 1998.[33]The pattern of the Particulars of Claim is to set out the events of 1993 and 1994 as descriptive of the joint venture and its implementation. The joint venture agreement itself is alleged in paragraph 9 to be contained in the written and oral agreements to which I have referred or in implications to be derived therefrom. Paragraphs 12 and 13 are in the following terms:
“12. At all material times Richard Hills, Peter Hills and Bowthorpe understood and intended that, in their conduct of the affairs of Argyll, Guardian Global and Yasaiwa, they were responsible for acting in the interests of the Joint Venture. This assumption of responsibility gave rise to a relationship of trust and confidence between these parties. 13. So far as concerned the affairs of Argyll and Yasaiwa, this assumption of responsibility was particularly important to Bowthorpe, since while the Option remained unexercised control over these two companies was entrusted to Richard Hills and Peter Hills. Bowthorpe was especially vulnerable to abuse by Richard Hills and Peter Hills of their positions.”
[34]In paragraphs 14 to 16 the claimants allege fiduciary duties owed by Peter Hills to Yasaiwa as its director and by Richard Hills, Peter Hills and Bowthorpe as parties to the joint venture. Paragraphs 17 to 22 deal with the increase in the share capital of Argyll between September 1995 and September 1997. In paragraphs 25 and 26 the claimants allege the repudiation of the Joint Venture Agreement by Richard Hills and a conspiracy between Richard Hills and Peter Hills to injure Bowthorpe. In paragraphs 28 to 63 the claimants set out the subsequent events of which complaint is made, namely, the amendment to the Service Agreement between Argyll and Richard Hills, its concealment from Bowthorpe and Yasaiwa, the renegotiation of the joint venture agreement in February 1997 and the misleading impression which it caused, the events of 17th to 24th April 1998, the transfer to Richard Hills of the shares in Argyll then held by Yasaiwa and the inadequacy of the consideration therefor. Paragraphs 64 to 77 contain claims to specific restitutionary relief designed to recover the Argyll shares or the property representing them. Paragraphs 78 to 80 raise claims for pecuniary relief including damages by reference to the “true value of Yasaiwa’s 70% shareholding in Argyll and £129,500”. Is the Third Action an abuse of the process of the court?[35]Plainly there is some overlap between the First Action and the Third Action because both, to a greater or lesser extent, arise out of the same facts. But the focus or emphasis is and the causes of action are different. Thus the First Action related to the enforcement of the Option Agreement between Peter Hills and Bowthorpe. The Third Action relates to the disposal by Yasaiwa of its shares in Argyll to Richard Hills. There is an obvious relationship between them but it does not follow that the Third Action is an abuse of the process.[36]The principles to be applied have been laid down in a series of decided cases culminating in the recent decision of the House of Lords in Johnson v Gore Wood & Co [2002] 2 AC 1 , the effect of which was summarised by May LJ in Specialist Group International Ltd v Deakin [2001] EWCA Civ 777 , para 23 as follows:
“If a claim has been explicitly determined in previous concluded proceedings between the same parties, that claim cannot be raised again, other than on an appeal, unless there is fraud or collusion. If a necessary element of a claim has been explicitly determined in previous concluded proceedings between the same parties, that issue cannot be raised again, if, as is likely but not inevitable, it would be an abuse to raise that issue again. This may also extend to an implicitly necessary element of the previous determination. The previous determination may include a settlement. If a claim or issue has not been determined in previous concluded proceedings between the same parties, there may nevertheless be circumstances in which, as a matter of public and private interest on a broad merits-based procedural judgment, it would be an abuse for a party to raise that claim or issue. Such circumstances may, depending on the facts, exist where the litigant could and should have raised the matter in question in earlier concluded proceedings. There may in particular cases be other elements of abuse, including oppression of another party; but abuse of process is a concept which defies precise definition in the abstract. The Court will only stop a claim as an abuse after most careful consideration.”
[37]The Hills contend that the Third Action is an attempt by Bowthorpe to relitigate the claim on which it failed in the First Action, in part by raising issues already decided against it and in part by repackaging the same facts and attaching to them different legal consequences which could and should have been raised in the First Action. They claim that Yasaiwa can stand in no better position than Bowthorpe. I will deal separately with the further contention with regard to the claim of Yasaiwa that it is bound to fail because the sale of the shares in Argyll was approved by the sole shareholder of Yasaiwa at the time, namely Peter Hills.[38]At the heart of the submissions for the Hills is the proposition that in the First Action Bowthorpe sought unsuccessfully to set aside the sale of Yasaiwa’s shares in Argyll or to obtain compensation in respect of that sale. They contend that Bowthorpe now seeks to relitigate the same cause of action and is estopped from doing so. This is disputed by Bowthorpe. It contends that the causes of action relied on in the Third Action are different.[39]I prefer the submissions for Bowthorpe. It is quite clear that the causes of action were different even if they arose out of the same facts. The First Action was a claim in respect of the Option Agreement. Bowthorpe sought specific performance and damages. It obtained an order for specific performance. Its failure to obtain any other relief was due to the fact that the judge concluded that Peter Hills was not in breach of any duty arising from that contract. It is plain from the course of the proceedings in the First Action that the judge was not asked to and did not determine that the sale of the shares in Argyll was properly concluded at a proper price. By contrast Bowthorpe’s claims in the Third Action are founded on alleged fiduciary or contractual duties arising from the joint venture and the alleged existence of a conspiracy. The compensation sought may or may not reflect losses arising from an improper sale of Yasaiwa’s shares in Argyll but the causes of action do not depend on it.[40]The Hills also contend that even if the causes of action are different the same issue was determined in the First Action as between Bowthorpe and the Hills so that it is an abuse of the process to raise it again in the Third Action. The issue on which the Hills rely is the finding they assert was made in the First Action that Peter Hills was in breach of his fiduciary duty to Bowthorpe but that there had been no loss.[41]I do not accept that submission either. There was no finding in the First Action that Peter Hills had acted in breach of any duty, let alone any such duty as is relied on in the Third Action. Nor was there any finding that there had been no loss, let alone that there was no loss because the sale of Yasaiwa’s shares in Argyll had been properly concluded at a proper price.[42]Finally it is asserted by the Hills that if the claims or issues raised in the Third Action were not determined in the First Action then they should have been. The issues in question as between Bowthorpe and the Hills are the existence of a joint venture or a conspiracy so as to give rise to the duties relied on in the Third Action. As both the joint venture and conspiracy alleged appear not to have been made in the Bahamas I have considerable doubt whether the causes of action relied on by Bowthorpe in the Third Action ever could have been raised in the First Action. Even if those claims could have been brought in the Bahamas it is plain from the speech of Lord Bingham of Cornhill in Johnson v Gore Wood & Co [2002] 2 AC 1 , 31D that such possibility is not enough. As he pointed out it is necessary, having taken account of the public and private interests involved and all the facts of the case, to decide whether Bowthorpe is misusing or abusing the process of this court by seeking to raise these issues in the Third Action.[43]In my view the answer to that question is in the negative. Even if the Bahamian court had had jurisdiction to adjudicate on the joint venture and conspiracy claims an important ingredient in them is the amendment to Richard Hills’s Service Agreement which was concealed from Bowthorpe at the time and not fully revealed until April 2001. The allegation is that this was effected so as to facilitate Richard Hills’s departure from Argyll and to depress the value of the Argyll shares in the meantime. Similarly it is now alleged that the apparent renegotiation of the joint venture was intended to lull Bowthorpe into a false sense of security while the Hills prepared to repudiate the joint venture altogether. I see no reason why Bowthorpe should have been expected so to widen the scope of the First Action as to extend to claims of which it was then only partially aware.[44]Counsel for the Hills emphasized the fraudulent conduct of Richard Scott in backdating Peter Hills’s resignation and share transfers and advancing a case on behalf of Bowthorpe in both the Bahamas and England which he, at least, knew to be false. I do not underestimate the gravity of that conduct. But no reliance is placed on any of the fraudulently backdated documents in the Third Action. Nor does the reliance on them in the early stages of the First Action and the Second Action mean that it is oppressive or vexatious of Bowthorpe to raise in the Third Action the claims it now seeks to pursue. By contrast, if the allegations now made by Bowthorpe are established, the conduct of the Hills may well attract similar criticism.[45]Yasaiwa claims to be entitled to set aside the sale of its shares in Argyll to Richard Hills pursuant to the transfer notice given on 24th April 1998 and to trace its property into the hands of some one or more of the defendants. In addition it seeks compensation in equity from Peter Hills for breach of his duty as a director. Yasaiwa was not a party to the First Action when it came on for trial and had never been a party to the Second Action. Accordingly there could be no abuse of the process of the court by Yasaiwa unless there was privity of interest as between Yasaiwa and Bowthorpe at the time of the events in question and/or at the time of the trial of the First Action.[46]The test of privity formulated by Sir Robert Megarry in Gleeson v Whipple [1977] 1 WLR 510, 515 namely “a sufficient degree of identification between the two to make it just to hold that the decision to which one was a party should be binding in proceedings to which the other is party” was applied by the House of Lords in Johnson v Gore Wood & Co [2002] 2 AC 1 , 32 and 60. In my view it is clear that, applying that principle to the relationship between Bowthorpe and Yasaiwa at the time of the events in question and at the time of the trial of the First Action, there was no privity of interest between them. At all those times Yasaiwa was controlled by Peter Hills, not Bowthorpe. It would not be just to attribute to either the acts or omissions of the other at any of those times.[47]For all these reasons I conclude that the commencement and pursuit of the Third Action is not an abuse of the process of this court. Consequently the claim of the Hills for orders to strike out the action on this ground fails. Does the claim of Yasaiwa have reasonable prospects of success?[48]As I have already indicated the claims of Yasaiwa are to rescind the sale by Yasaiwa of its shares in Argyll to Richard Hills pursuant to the transfer notice served on 24th April 1998 and/or to obtain damages from Peter Hills for breach of his fiduciary duties to Yasaiwa as its director. For the purpose of considering the contentions of the Hills it is necessary to assume that Yasaiwa is correct in its assertion that the sale of the shares in Argyll was an improper exercise of the powers of the directors both because it was effected otherwise than in the interests of Yasaiwa and at a substantial undervalue. The submission is that even on that assumption the claim must fail because the sale was authorised by all the shareholders in Yasaiwa.[49]I have described the factual basis for this contention in paragraph 18 above. The legal basis is demonstrated by the line of cases commencing with Salomon v Salomon [1897] AC 22 , 57 and continuing with A-G for Canada v Standard Trust [1911] AC 498 , Re: Express Engineering Works [1920] 1 Ch 466, Re Duomatic Ltd [1969] 2 Ch 365; Multinational Gas v Multinational Services [1983] Ch 258, West Mercia v Dodd [1988] BCLC 250 and Official Receiver v Stern [2002] 1 BCLC 119 . In Salomon v Salomon Lord Davey pointed out that a company is bound in a matter intra vires by the unanimous agreement of its members.[50]But subsequent decisions show that there are exceptions to such a principle. First, the transaction must be bona fide or honest. This, in my view, is demonstrated by the qualification of Viscount Haldane in A-G for Canada v Standard Trust [1911] AC 498 , 505 that “the case was not...a cloak under which a conspiracy to defraud was concealed”, by Younger LJ in Re: Express Engineering Works [1920] 1 Ch 466, 471 that “no fraud is alleged in respect of this transaction”, and by Lawton LJ in Multinational Gas v Multinational Services [1983] Ch 258, 268 that the members must act in good faith. Thus, in Re Duomatic [1969] 2 Ch 365, 372 Buckley J cited with approval the view of Astbury J in Parker and Cooper Ltd v Reading [1926] Ch 975, 984 that the transaction must be both intra vires and honest.[51]The second exception, which may be merely an exemplification of the first, is that the transaction so authorised must not be likely to jeopardise the company’s solvency or cause loss to its creditors. The existence of this exception is demonstrated by a number of cases. Its origin may be traced to the dicta of Cumming Bruce and Templeman LJJ in Re: Horsley & Weight [1982] Ch 442, 454-456. In Nicholson v Permakraft (NZ) Ltd [1985] 1 NZLR 242, 250 Cooke J, with whom the other members of the Court of Appeal in New Zealand agreed, considered that where the transaction in question was likely to cause loss to creditors or threaten the continued existence of the company then the unanimous assent of the shareholders is not enough to justify a breach of duty to the creditors. In such a case “Concurrence by the shareholders prevents any complaint by them, but compounds rather than excuses the breach as against the creditors.”[52]In Kinsela v Russell Kinsela (1986) 4 NSWLR 722 the Court of Appeal for New South Wales approved and applied that dictum. At p. 732 Street CJ said “It is in my view legally logical and acceptable to recognise that, where directors are involved in a breach of their duty to the company affecting the interests of shareholders, then shareholders can either authorise that breach or ratify it in retrospect. Where, however the interests at risk are those of creditors I see no reason in law or logic to recognise that the shareholders can authorise the breach. Once it is accepted, as in my view it must be, that the directors’ duty to a company as a whole extends in an insolvency context to not prejudicing the interests of creditors...the shareholders do not have the power or authority to absolve the directors from that breach.” An earlier statement to the like effect was approved by Dillon LJ in West Mercia v Dodd [1988] BCLC 250, 252 and by the Court of Appeal in Official Receiver v Stern [2002] 1 BCLC 119 , 129 para 32.[53]Counsel for the Hills admitted for the purposes of this application that the disposal of the shares in Argyll did give rise to a deficiency with regard to creditors of approximately £10,000. But he contended that even so the exception from the general principle does not apply either because it can only avail a creditor or liquidator, not the company (unless it is insolvent liquidation), or because it only applies to the extent that the transaction gave rise to a deficiency, that is £10,000, not to the much greater amount Yasaiwa claims. Counsel supported his argument with a close examination of the cases to which I have referred and others. I do not find it necessary to do likewise.[54]I would reject both submissions on the simple ground that the issue in all these cases is one of authority, the members either did or did not authorise or ratify the transaction of which complaint is made. If they did not then the transaction was unauthorised and is liable to be avoided altogether, not to some more limited extent, by the company in whose name the directors purported to act, not only by creditors or a liquidator on their behalf.[55]But it is not necessary to go that far to dispose of this application. The question for the purposes of CPR Rules 3.4(2) and 24.2 is whether Yasaiwa has reasonable grounds for bringing and reasonable prospects of success in its claim to rescind the sale of the Argyll shares and/or to obtain compensation from Peter Hills. The answer to those questions is plainly affirmative. If Yasaiwa establishes the allegations made in its Particulars of Claim it will show that the sale of the Argyll shares was not effected for the purposes or benefit of Yasaiwa but was a dishonest misapplication for the benefit of Peter Hills and Richard Hills. In that event it will come within the first exception. Further, notwithstanding the ingenious arguments of Counsel for the Hills regarding the suggested limitation to the application of what may be called the Kinsela principle, it will also, at least arguably, come within the second.[56]The reality of the matter is, assuming that Yasaiwa proves its case, that Peter Hills, through nominee and alternate directors, misapplied the assets of Yasaiwa otherwise than in good faith. His then transient capacity as the only member, pending completion of the sale of the shares in Yasaiwa to Bowthorpe, could not authorise such a transaction, not least because it prejudiced creditors of Yasaiwa.[57]In argument before me there was considerable debate as to which of Bowthorpe or Yasaiwa could recover compensation in respect of the sale of the shares in Argyll if their claims were made out. Obviously they cannot both recover compensation for the same loss but that is no reason at this stage for striking out or dismissing the claims of either of them. Conclusion[58]For all these reasons I dismiss this application.

Cited in 13 later judgments

and 4 more of the most senior