Roadchef (Employee Benefits Trustees) Ltd v Hill & Anor [2014] EWHC 109 (Ch)

[2014] EWHC 109 (Ch)Case No HC11C00511
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 29/01/2014
Before
MRS JUSTICE PROUDMAN
Between
ROADCHEF (EMPLOYEE BENEFITS TRUSTEES) LIMITEDClaimantTIMOTHY INGRAM HILLDefendantsTIMOTHY INGRAM HILL, SARAH INGRAM HILL and JOHN REGINALD HURDLEY (as trustees of the trust formerly known as the Roadchef Employee Benefits Trust (No 2))Defendant
Nigel Jones QC, PJ Kirby QC and Emily Betts (instructed by Capital Law LLP) for ClaimantMichael Brindle QC and Giles Wheeler (instructed by DAC Beachcroft LLP) for DefendantsHearing Hearing dates: 19/20/21/24/25/26/27/28/June, 02/03/04/July, 07/08/09 October 2013
Approved JudgmentI direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.……………………………………………………………………
[1]These proceedings concern a transfer of shares in Roadchef plc (“Roadchef”) between two employee benefit trusts, “EBT1” and “EBT2”, created on 9 December 1986 and 5 July 1988 respectively. Roadchef is the holding company of a group which operated motorway service areas.[2]The claimant (“REBTL”), a subsidiary of Roadchef, was and is the corporate trustee of EBT1 and the defendants (described as the second defendants and including the first defendant, Mr Ingram Hill,) are the current trustees of EBT2. The claim concerns the circumstances in which the second defendants granted options over the shares to Mr Ingram Hill, who was from 1986 the managing director and from 1988 also the chairman and chief executive of Roadchef.[3]Mr Jones QC, Mr Kirby QC and Miss Betts appeared before me for REBTL and Mr Brindle QC and Mr Wheeler for the defendants.[4]At the material times, EBT1 was concerned in the operation of an Employee Share Ownership Plan, or ESOP, for the benefit of Roadchef employees. EBT2 was a trust used to provide share incentives to Roadchef’s senior management.[5]The principal claims in the action are that a transfer of shares between EBT1 and EBT2 was void or voidable or, alternatively, was made by REBTL in breach of trust or breach of fiduciary duty owed to the beneficiaries of EBT1 and that Mr Ingram Hill dishonestly assisted in the breach, subsequently receiving the shares in the knowledge that they had been transferred in such breach. The principal claim is that Mr Ingram Hill holds all the profit he made as trustee for REBTL or alternatively is liable to REBTL in damages or is accountable for the profit.[6]I say the principal claim because there are several inter-related claims, which I found confusing and have therefore attempted to summarise in tabular form in the schedule annexed to this judgment. However I agree with Mr Brindle that the case largely stands or falls on the facts. I say largely because, although at first Mr Brindle sought to persuade me otherwise, there is a substantial trust question, irrespective of any alleged wrongdoing, as to whether there could have been a valid transfer from EBT1 to EBT2 in exercise of the power said to have been used.[7]REBTL’s factual allegation is that Mr Ingram Hill made certain deliberate and pre-meditated arrangements, as follows:• He arranged for a company of which he was a director to be appointed as the trustee of EBT2.• He arranged for the EBT2 trust deed to be amended so that he could benefit while remaining a director and the prohibition against directors benefiting did not apply to him.• He arranged for REBTL to be appointed as trustee of EBT1 and then secured his appointment as director of REBTL.• He persuaded REBTL pursuant to a number of alleged representations to resolve to transfer all the unappropriated shares then owned by EBT1 to EBT2.• He then secured the grant to himself by EBT2 of share options over the shareholding.• He exercised the options and sold the shares as part of the sale of Roadchef at the price of 131p per share, thus making a profit from the sale of some £26.8m. Background facts[8]In 1983 there was a management buy-out (“MBO”) of Roadchef. The then managing director, Mr Gee, was the prime mover behind the MBO and he and his family acquired a 70% holding in Roadchef as a result. A Mr Edgington, the company accountant but not then a director, acquired 2% and Mr Ingram Hill, again not then a director, acquired 3%. After the MBO Mr Ingram Hill was appointed operations director of Roadchef’s operating company.[9]Mr Gee wanted to spread ownership among his workers and was keen that there should be a share option scheme under which some 20% of Roadchef’s shares would be employee owned. In early 1986 Mr Gee, Mr Edgington and Mr Ingram Hill flew to the United States to investigate share ownership schemes as there was at that date no comparable scheme in the United Kingdom. Very soon after their return Mr Gee died. Mr Ingram Hill succeeded him as Roadchef’s managing director. Mr Edgington was later appointed finance director and company secretary. They both continued the search for an appropriate ESOP scheme.[10]Later that year an ESOP was established pursuant to a resolution by Roadchef on 10 December 1986. The previous day EBT1 was constituted by a trust deed. There were three original trustees, Mr Ingram Hill, Mr Cyril Aydon and New Bridge Street Trustees Limited (“NBST”) and two new trustees, Ms June Latham and Mr David Basnett (who died in January 1989), were appointed the following February.[11]New Bridge Street Consultants Limited (“NBSC”) was a wholly owned subsidiary of Clifford Chance, solicitors, and its role was to advise Roadchef about the ESOP. The advice given was primarily practical commercial advice about its operation, but it also included legal advice although on tricky legal questions advice would be sought from Clifford Chance. NBST, a related company, was a professional trustee. As Mr David Tankel, a consultant with NBSC, said in oral evidence, “…at the beginning [we]…had a dual function. We were advising the company as [NBSC] and then we sat on this trust as a representative of [NBST]. So it was quite hard to disentangle it [the borderline between the two companies] in practice, yes.”[12]It was also hard to determine precisely who was being advised in what capacity. Mr Ingram Hill said that advice from Mr Tankel was received in his capacity as a member of Roadchef’s Board, although he said that he knew that Mr Tankel would also report to the EBT1 Trustees. There was a similar difficulty with advice from 1993 onwards from Mr John Hurdley of Beachcroft Stanley. Mr Ingram Hill’s evidence was that Mr Hurdley was never Mr Ingram Hill’s personal solicitor although that is possibly how Mr Hurdley would have seen his own role. Thus Mr Ingram Hill said that instructions given to increase his shareholding were instructions given on behalf of Roadchef although the matter had not been discussed at all with Roadchef’s director Mr Edgington. Mr Hurdley’s role is blurred in this regard. He did not give evidence and his own view of his function is not therefore known.[13]A Share Participation Scheme (“the SPS”) was constituted by a Trust Deed dated 18 December 1986. Again, Mr Ingram Hill was a trustee, this time not only with Mr Aydon and NBST but also with Ms June Latham, Mr Michael Stunnell and Lord Cocks. The SPS was financed by Unity Trust Bank (“UTB”) and had the backing and cooperation of Roadchef’s principal Trade Union, GMB, of whom Ms Latham had been a shop steward for some 20 years.[14]Mr Gee’s widow agreed to sell some of the family shares to establish the ESOP and it was set up with an initial shareholding of 7%, being 2.9% from Mrs Gee and 4.1% from others. Two trusts were created to operate the ESOP: namely EBT1 and the SPS which latter was approved by HMRC in accordance with Part I of Schedule 9 to the Finance Act 1978 with the consequence that Roadchef’s financial contributions to it were tax deductible.[15]The scheme involved an initial 12.25% of the equity of Roadchef being reserved among the staff equally. After a number of years of service, staff were entitled to an allocation of shares for each year of service. To minimise tax, staff who left Roadchef had to keep their shares for five years but they could then be sold to the ESOP which would buy them back for redistribution. Prior to allocation shares were held in EBT1.[16]The structure was as follows. EBT1 borrowed money from UTB to buy shares in Roadchef. The trustees of EBT1 entered into a charge in favour of UTB by way of memorandum of deposit of the shares; the charge was released in so far as required to transfer shares and to repay the loan. The charge was guaranteed by Roadchef. Every year Roadchef would make (tax deductible) financial contributions to the SPS which would use the money to buy shares from EBT1. Those shares were then appropriated in accordance with directions from Roadchef’s board of directors to all eligible employees of Roadchef. EBT1 would use the money it received from the SPS to reduce its loan obligation to UTB. The number of shares purchased by the SPS depended on the funds available from Roadchef and the value per share agreed with HMRC.[17]On 5 April 1988 Mr Ingram Hill resigned as a trustee both of EBT1 and the SPS. The circumstances of his resignation are disputed, REBTL saying (and the defendants denying) that it was because he would be unable to benefit while he remained a trustee. The reason advanced by REBTL is that owing to the number of shares Mr Ingram Hill was about to receive from Mrs Gee he was concerned that he would be entitled to more than 25% of the Roadchef shareholding if the shares he held as trustee were taken into account.[18]That summer the Roadchef Board (of which Mr Ingram Hill had become Chairman and Chief Executive) resolved to establish EBT2 with a view to its use for senior employees. At a meeting of the EBT1 Trustees on 4 July 1988 it was resolved to transfer 95,750 shares to EBT2, shares which it is common ground were the shares which Roadchef had purchased from departing directors Mr Stunnell and Mr Bryan earlier that year and which it was always intended were to be held by EBT2. However EBT2 was not established until 5 July 1988 and it seems that the shares were “parked” in EBT1 and transferred, purportedly under the power contained in Clause 4 (1), for convenience sake. The use of Clause 4 (1) in these circumstances, very different from those which later prevailed, was treated as a precedent.[19]EBT2 was constituted by trust deed on 5 July 1988, with Mr Ingram Hill and Mr Edgington as the original trustees. The expression “the Beneficiaries” was defined to mean:
“such of the employees from time to time of [Roadchef] any subsidiary…which is a participating company in relation to any profit sharing scheme established by [Roadchef] and approved under Schedule 9 to [TA] 1988 (other than the Trustees) as [Roadchef] may in its absolute discretion by notice in writing to the Trustees nominate and “Beneficiary” has a corresponding meaning”
Thus although the expression notionally covered all Roadchef’s employees, (i) Roadchef had to nominate a person before he or she could become a beneficiary, (ii) a trustee of EBT2 was disqualified and (iii) it was always understood that EBT2 would be used to benefit senior employees only.[20]On 1 December 1989 NBSC produced a Report to the Trustees of EBT1 at a meeting at which Mr Ingram Hill was in attendance, recommending incorporation of the Trustees “in the light of the Financial Services Act 1986”, but concern was expressed that incorporation would lead to fears among the ESOP membership that the Trustees were no longer independent of Roadchef. The Trustees therefore resolved not to incorporate “at this stage” but asked NBSC to keep the Trustees informed of developments that might affect the situation.[21]On 8 March 1993 Mr Forwood and Mr Hurdley of Beachcroft Stanley sent a memorandum to Mr Ingram Hill and to Mr Martin Copp (who had joined the Board of Roadchef on 1 February 1993 as a non-executive director) considering “the desire to increase Mr Ingram Hill’s shareholding to 25%+ of the voting shares”. It was stated that:
“The advantages of increasing the holding to +25% are:- (a) the ability to control the passing of special resolutions (which require a 75% majority); (b) the ability to control groupings for tax purposes (dependent on 75% control)… (c) The significant disadvantage is that all existing shareholders would be involved, with the inevitable consequences of having to explain a complicated proposal to them, involvement of other legal advisers etc. etc.” (a) the ability to control the passing of special resolutions (which require a 75% majority); (b) the ability to control groupings for tax purposes (dependent on 75% control)… (c) The significant disadvantage is that all existing shareholders would be involved, with the inevitable consequences of having to explain a complicated proposal to them, involvement of other legal advisers etc. etc.”
[22]On 9 March 1993 there was an attendance note by Mr Hurdley of a meeting with Roadchef (the client is named as Roadchef), saying:
“[Tim] appreciates that he should make every effort, by whatever means are available to him, to acquire outright, every single share he can… He is very, very keen…not to make any disclosures with regard to the changes of shareholdings until the deals have been completed.”
[23]Then there is an undated note from Mr Hurdley also made in March 1993. This note (to be circulated to other Beachcroft Stanley advisers) was headed:
“Note on Proposal for the Chairman of Roadchef, Tim Ingram Hill, to increase his shareholding in the company from its present level of 22% to a level in excess of 25% (possibly an additional 15/20%) by the acquisition of various tranches of shares from other individual shareholders.”
However the Note went on to say (at paragraph 3- my emphasis), “There are two purposes behind the acquisition. The first is to get as many shares as possible under his control so that he is in a strong position in the event that any bid is made for the Company. The second is to enable him, on a longer term basis, to acquire a more valuable holding should he ever wish to dispose of it.”[24]This second purpose was disavowed by Mr Ingram Hill, but it is there in Mr Hurdley’s Note and fulfilment of that purpose is what, in the event, happened. It was a repeated feature of Mr Ingram Hill’s evidence that the references in the documents to his attempts to gain control of shares were in truth no more than his desire to gain control of slightly more than 25% so as to be able to block special resolutions. However it is clear in the knowledge of what actually happened that Mr Ingram Hill wanted to control the trusts and also (through his control of Roadchef) the funding.[25]In Mr Ingram Hill’s evidence he maintained that it was reasonable to say that he wanted to acquire every share available. By the end of October 1993 Mr Ingram Hill had achieved control of over 25% when he obtained voting rights over the Lindley shares, as explained below. It is notable that Mr Edgington, a director of Roadchef at the relevant time, was not told of Mr Ingram Hill’s ambitions to increase his shareholding, or about any of the notes or memoranda passing between him and Mr Hurdley. Further there were no Board meetings of Roadchef in early 1993 at which the commercial benefit to Roadchef of Mr Ingram Hill acquiring shares was discussed. Although a director of Roadchef there was a conscious strategy that Mr Edgington was to be kept in the dark.[26]Mr Hurdley’s Note of March 1993 then went on to identify a trust route for further examination. It is plain that one of the objects of the trust route was to ensure that Roadchef, in the shape of Mr Ingram Hill, retained control over EBT1. This is highlighted in a note from Mr Hurdley to Mr Price of Beachcrofts in which he discussed, “the need for there to be a commercial benefit to [Roadchef], which I think was seen as being the concentration of shares in the hands of those who were actually concerned with Roadchef directly, whether as employees or, in the case of this scheme, as directors.” This was followed up in a further note of 28 July 1993 about a reorganisation entrenching the rights of Mr Ingram Hill.[27]There then followed a number of meetings. The first was on 6 July 1993 attended by Mr Ingram Hill and Ms Szymanska for Roadchef and David Tankel and Sheila Richardson of NBSC. Various matters were discussed relating to the future of the ESOP. It was said that Roadchef had indicated that it wished to reduce the costs to it of running the ESOP. Funding would be reduced and the EBT1 Trustees would then be obliged to sell some shares in order to fund their own costs. UTB was in favour of a share sale. A sale of shares in the then current market would provide five years future funding. However at that meeting Mr Tankel gave advice that it would not be in the best interests of the EBT1 beneficiaries to sell shares and the only reason to do so would be if there was no alternative.[28]Incorporation of the Trustees of EBT1 and of the SPS was also discussed at that meeting and it was evident that Mr Ingram Hill was in favour, saying that incorporation allowed for majority voting and avoided personal liability. Mr Tankel also was on balance in favour of incorporation. However at a Roadchef Board Meeting on 15 July 1993 it was evident that Mr Edgington was opposed to incorporation for the old reason that incorporation would have an adverse effect on the trustees’ independence. Ms Szymanska gave evidence that Mr Ingram Hill did not mention at the meeting that he had already written to Lord Cocks, a trustee of both EBT1 and the SPS, recommending incorporation.[29]On 13 July 1993 there is an attendance note of a conversation Mr Hurdley had with Mr Ingram Hill relating to the increase in the latter’s shareholding. The Note records an agreement that Mr Hurdley would review the question of setting up a trust, funded by Roadchef, for Mr Ingram Hill to acquire shares or options over them. He followed this with a letter to Mr Ingram Hill dated 15 July 1993 advising that there was nothing to prevent Roadchef from funding the purchase of its shares by a Trust, “of which you are the intended principal beneficiary”. Mr Hurdley bore in mind all the time that Mr Ingram Hill wanted to acquire shares but did not have the funds to do so and therefore the grant of options was the favoured route.[30]A meeting of the Trustees of EBT1 was held on 16 July 1993. Mr Ingram Hill was in attendance and addressed the meeting, saying that Roadchef had decided to suspend its contributions to EBT1 for the next five years, explaining that Roadchef was meeting the ESOP costs, namely fixed repayments on the loan and the running costs, out of income. The running costs included interest and provision for the buyback of shares. He therefore asked the Trustees to agree to sell some £800,000 shares in EBT1 to Roadchef at a valuation of about £1.30 per share. The Trustees discussed the matter and came to various conclusions unanimously, namely, “(i) their overriding duty is to the beneficiaries of the EBT; (ii) they have certain obligations which they must meet- these include paying the interest on the loan from Unity Trust, together with other running costs; (iii) They would not sell any part of their current shareholding if they had a choice in the matter; (iv) However, the Company had given them no choice, and in order to meet their obligations, they had reluctantly accepted that they must sell a proportion of their shareholding, being up to approximately 800,000 shares representing 7.5% of Roadchef Holdings Limited, and they resolved unanimously to do so; (v) In reaching this decision, the trustees drew comfort from the Company’s assurance that the Trust would be left with sufficient shares to enable the PST [the SPS] to make future appropriations under the ESOP; and (vi) The sale would only proceed once the valuation of the shares had been confirmed in writing by the Inland Revenue.”[31]At the same meeting it was also agreed unanimously “to incorporate the trust” in time for the December 1993 meeting, by which it was meant to appoint a corporate trustee. “Specifically it was agreed that a company (a subsidiary of [Roadchef] would be formed, of which the current trustees would become directors, with Chantal Szymanska as secretary.” On the same day the Trustees of the SPS also resolved to appoint a corporate trustee and on 17 August 1993 Roadchef at a Board Meeting agreed to the appointment of corporate trustees of EBT1, EBT2 and the SPS.[32]Ms Latham gave evidence commenting on these resolutions to the following effect:• Her understanding was that the sole reason for the sale was that Roadchef could not afford to meet the bills necessary to sustain the ESOP.• She understood (wrongly, although Mr Ingram Hill accepted that he had said this at one stage) that NSBC had recommended withdrawal of costs by Roadchef and she did not know that Mr Tankel had advised that it would not be in the best interests of the EBT1 trustees to sell.• She was not aware of Mr Ingram Hill’s intention to acquire as many shares as possible.• She was not aware of Roadchef’s purchase of shares for EBT2 and Mr Ingram Hill’s options over them. She said she would have regarded this as a material factor.[33]Throughout the summer of 1993 Mr Ingram Hill proceeded with his plan to acquire as many shares as possible in Roadchef. He approached Mrs Gee without success and acquired voting rights from a Mr Clive Lindley and his wife. He then decided to acquire Mr Edgington’s shares. However these were to be funded by Roadchef, through the medium of a loan to the trustees of EBT2 guaranteed by Roadchef, and then the grant of options by the EBT2 trustees to Mr Ingram Hill.[34]Some EBT1 shares were to be used to provide preference shares as part of a refinancing share warrant proposal made by Granville & Co Limited (“Granville”). However, in that eventuality EBT1 would be selling the shares, although Mr Tankel expressed the view that it would not be in the best interests of the employees to sell shares, unless they had no choice in the event that Roadchef were to withdraw funding from the ESOP. Again, Mr Ingram Hill was not entirely honest with the EBT1 Trustees. He wrote to the chairman, Lord Cocks, asserting that the withdrawal of funding was Mr Tankel’s idea, which it was not. He gave the impression that Roadchef had already established a five year strategy to withdraw funding for legitimate reasons to do with the affordability of the ESOP. He did not mention that the purpose of the sale of the shares was to promote the share warrant proposal rather than to put the trustees in funds. The true reason, as Mr Ingram Hill accepted in cross-examination, was to extract the shares under threat of reducing the ESOP. He sent a briefing note to the EBT1 trustees to the same effect.[35]On 2 November 1993 Mr Edgington resigned as a trustee of EBT2 and Mr Ingram Hill became its sole trustee. The following day Mr Hurdley wrote to Mr Ingram Hill in the following terms, “Maurice’s 7% shareholding is now available to you… There are various choices open to you all of which involve RoadChef Holdings Limited as you are not able personally, for very understandable reasons, to purchase the shares outright… The most suitable vehicle for acquiring the shares is obviously a trust established by RHL but under your control. This can either be a new Trust established for your purpose or EBT2… Whichever trust is used, further choices arise in relation to:(i) who will be the trustees;(ii) how the Trust will acquire funds to purchase the shares;(iii) what interest you will then be granted in respect of them.” (i) who will be the trustees; (ii) how the Trust will acquire funds to purchase the shares; (iii) what interest you will then be granted in respect of them.”[36]Mr Hurdley then raised the difficulty posed by the wording in clause 1 (4) of EBT2 excluding a trustee from being a beneficiary. He went on to say, “These two difficulties are by no means insurmountable bearing in mind that Clause 12 of the Trust Deed provides that:
‘The Company may at any time with the consent in writing of the Trustees by Deed, alter or add to all or any of the provisions hereof in any respect.’
Accordingly, subject to the [Roadchef] Board being prepared to consent to an amendment and to any other objection e.g. if the approved Scheme status is relevant in some way, Clause 1 (4) can be changed to…delete…the exclusion relating to the Trustees… Once the shares have been acquired by the Trust the third area of choice arises as to how the shares can be got to you i.e. either by way of grant of options or outright gift, or indeed a mixture of the two. The first priority to my mind is to establish your rights in respect of the shares and this would be most easily achieved by granting you options at the current market price to avoid any immediate tax charge arising. You can then consider at your leisure as to whether this is in fact the most suitable means of getting the shares to you as it is perfectly possible at a later date to substitute a fresh arrangement if desired. In the meantime however you have secured your right to the shares at the current low price.” ‘The Company may at any time with the consent in writing of the Trustees by Deed, alter or add to all or any of the provisions hereof in any respect.’[37]In November 1993 RMTL was appointed the sole corporate trustee of EBT2 (Mr Ingram Hill being its sole director) and on 15 November 1993 REBTL was appointed the sole corporate trustee of EBT1. The previous trustees were its directors. Also SPS had a sole corporate trustee, again with the former trustees as its directors.[38]On 3 December 1993 Mr Ingram Hill was in effect entrenched as chairman of Roadchef, giving him absolute control if there was only one other director.[39]On 12 January 1994 RMTL agreed to borrow £1m from Barclays for the purpose of acquiring Mr Edgington’s shares (which it did on 3 February 1994), this loan to be guaranteed by Roadchef. Mr Hurdley had advised that Mr Ingram Hill had to be “absolutely sure that [the trustee of EBT2] is under your control”, that getting Mr Edgington’s shares to him could be “most easily achieved by granting you options” and Mr Ingram Hill would have “secured your right to the shares at the current price.” (My emphasis).[40]Mr Edgington was plainly concerned both about his own position and about Mr Ingram Hill’s motives in acquiring his shares and he sought advice from his personal solicitors. Two paragraphs of the letter of advice (dated 21 January 1994) show his state of mind:
“2. You believe that TIH proposes to change the trust deed to enable trustees to be interested in a matter concerning the trust even if there are no disinterested trustees. It is impossible to say if he seeks out of self interest or as part of a scheme toward wider share ownership among employees. Speculation in this regard is not profitable… 9. Beachcrofts have correctly advised that, at least superficially, if the loan/assistance is to enable an EBT to acquire shares for the benefit of employees that s.151 is avoided by virtue of s. 153 (4)(b) of the Companies Act 1985. There is a caveat to this, which Mr Hurdley does not detail in his advice to TIH. The financial assistance must be “in good faith in the interests of the Company” for s. 153(4)(b) to apply. If the assistance is given and the members learn that it is primarily intended to enable TIH to obtain more shares (at a substantial discount even after paying tax) through EBT2, might some of them be aggrieved? [and]…seek to challenge and/or reopen the transactions? At present, I believe that you have no evidence of bad faith, though you believe that TIH is not averse to enhancing the value and power of his holding by any economic means. I am sure that he has not detailed his intent (if any) to Beachcrofts or they would have added my caveat to their advice.”
The financial assistance must be “in good faith in the interests of the Company” for s. 153(4)(b) to apply. If the assistance is given and the members learn that it is primarily intended to enable TIH to obtain more shares (at a substantial discount even after paying tax) through EBT2, might some of them be aggrieved? [and]…seek to challenge and/or reopen the transactions? At present, I believe that you have no evidence of bad faith, though you believe that TIH is not averse to enhancing the value and power of his holding by any economic means. I am sure that he has not detailed his intent (if any) to Beachcrofts or they would have added my caveat to their advice.”[41]On 25 February 1994 there was a Roadchef Board meeting at which the Board approved a resolution to amend the EBT2 trust deed and Mr Ingram Hill said (before that amendment) that RMTL intended to issue share options to him.[42]On 2 March 1994 Mr Ingram Hill as sole director of RMTL executed a deed to amend the EBT2 trust deed enabling directors of RMTL to be beneficiaries of EBT2. He had previously told Ms Szymanska that he was going to amend the EBT2 Trust deed in this way so that he could benefit under it. On 17 March 1994 Mr Hurdley wrote to Mr Ingram Hill (although the letter was not apparently sent it appears that there was an oral discussion to the same effect at about the same time) saying, “You asked me to confirm on the telephone the other day that I was happy with this arrangement from a legal point of view i.e. that it was legally correct for you, with your hat on as the sole Director of the trustee company, to exercise your discretion as such trustee and grant options to yourself as a beneficiary of the trust. I conformed that this was legally correct at the time and I am pleased to confirm that I remain of the same view. The purpose of this letter is accordingly not to pick up any point on the legal issues involved in the arrangement but to draw your attention to the possibility that prospective investors in Roadchef or even possibly, other shareholders, may be concerned not so much with the legal issues but with the more general issue as to whether a single individual should in fact play all the roles inherent in the arrangement… …it appears to me that it would be preferable if there could be some separation between the individuals granting the options and those receiving them if only by there being a number of Directors of the trustee company from amongst whom one or more are selected as beneficiaries. This would mean that any Director who was also proposed as a beneficiary could abstain from participating in the decision relating to his selection…The ideal number of Directors for such purpose would be three so that a majority could always decide matters… I am sorry to raise this with you at this late stage but the arrangement for putting the options in place has only gathered momentum very recently…”[43]On 12 May 1994 Mr Hurdley wrote a letter to Mr Ingram Hill enclosing certain pre-prepared documents “relating to the grant of options to you”, namely a draft Board Minute for Roadchef, a draft Notice to Trustees, a draft letter to Trustees and a draft Board Minute for RMTL. Mr Hurdley said, “…it is desirable that, for the purposes of EBT2, we establish a policy whereby [Roadchef] nominates suitable beneficiaries to the Trustee for the receipt of options and then makes recommendations to the Trustee as to the number and price of options to be granted. The Trustee, in its discretion, will then decide to accept those recommendations and grant options to the nominated beneficiaries… I believe it is important that the grant be done in this way so that the grant of options to you…can be shown to be part of a policy.”[44]On 16 May 1994 Beachcroft Stanley sent further draft documents to Mr Ingram Hill. In accordance with the drafts (and an attendance note of a conversation between Mr Ingram Hill and Mr Hurdley), Roadchef wrote to RMTL to inform it of the nomination of Mr Ingram Hill, Mr McLellan and Mr Denning as beneficiaries of EBT2 and RMTL wrote to Roadchef to recommend the grant of options from EBT2 to Mr Ingram Hill to purchase 900,000 ordinary shares in Roadchef at a subscription price of 120p per share. The letter was countersigned by Mr Copp on behalf of Roadchef.[45]On 18 October 1994 Mr Ingram Hill told NBSC that he was concerned at the cost of the ESOP to Roadchef and stated his preference that unallocated shares in EBT1 should be transferred to EBT2. On 20 October 1994 Mr Tankel accordingly advised Roadchef of a possible transfer of shares from EBT1 to EBT2. However on 20 October 1994 Mr Tankel wrote to Mr Ingram Hill with his further thoughts on the possible transfer. He pointed out that there was a specific power in Clause 4 (1) to transfer, but explained the special circumstances affecting the employment of the power in 1988. He then gave some important advice, “In the present case, the number of EBT’s shares would fall and it is of course a matter for the trustees whether to transfer the shares. In my view there must be a doubt whether they would feel that such an action is in the interests of their beneficiaries, particularly if the transaction diminishes their net assets. It would however be a quite different matter if the trustees felt compelled to do so, e.g. by Roadchef stopping payments to the trust. That said, for technical reasons, it might turn out to be better to keep the shares in EBT(1), but persuade/force the trustees not to distribute any shares.”[46]In or about November 1994 Mr Aydon produced various costings demonstrating the sale of shares by EBT1 but in the event a sale did not proceed.[47]The future of the ESOP was discussed at a Board Meeting of REBTL (which Mr Ingram Hill attended as a representative of Roadchef) on 7 December 1994. Mr Ingram Hill, supported by Mr Aydon, expressed the opinion that the cost of funding the ESOP was at an unsustainable level, namely 20% of Roadchef’s profits, and that future allocations of shares to employees should be reduced.[48]The meeting of 7 December is important because the minutes do not refer to any sale or other transfer of the shares from EBT1 to EBT2, nor do they refer to any exercise of the power in Clause 4 (1) of EBT1. Mr Ingram Hill said in his oral evidence that the minutes did not reflect the true position and that there had been what he termed “a pre-meeting” where he could “clearly remember these matters were discussed in some detail by the trustees”. However this alleged pre-meeting was not referred to in Ms Latham’s evidence, nor in Mr Ingram Hill’s witness statement, and the only support for the transfer having been mentioned is Mr Ingram Hill’s own entirely inconclusive note at the bottom of his copy of the Agenda. It is true that paragraph 8 of the Minutes say that “Cyril Aydon had already had an opportunity to discuss these issues with Tim Ingram Hill, and in general shared his views” but “these issues” appear to be limited to the costs of funding the ESOP and reduction of allocations to employees in future years.[49]Mr Ingram Hill was comprehensively cross-examined on the subject of the alleged pre-meeting and I do not believe that there was any pre-meeting that mentioned a transfer of shares. That is to be contrasted with Ms Latham’s recollection, namely that she had no reason to think that the minutes were inaccurate, although in her initial witness statement she did say that, having considered Mr Aydon’s projections, “We…discussed shares being transferred to EBT2, enabling Roadchef’s capital contribution to decrease and the UTB loan interest to halve. This also meant that the Trust would not have to refinance. The problem would effectively be moved out of the ESOP and our remit.” However, Mr Aydon’s paper referred to a sale of shares, not to the exercise of the Clause 4 (1) power. It does not seem to me that Ms Latham understood the distinction; she relied on others, and in particular Mr Ingram Hill, for such matters.[50]Mr Ingram Hill seemed unable to respond to the allegation put to him in cross-examination that the amount Roadchef was spending on the ESOP was significantly less than 20% of its profits. Ms Latham clearly believed the figures. She saw the internal market in, and buy-back of, shares as being one of the reasons for the increase in costs to Roadchef, although buyback became unlimited at a later stage. However she confirmed that there had been no discussion at the meeting of any alternative ways of managing the internal market to reduce costs. Instead the Trustee agreed to reduce the internal market and reduce the number of allocations.[51]Then there is the crucial REBTL Board meeting of 6 February 1995 at which REBTL resolved to transfer the shares to EBT2.[52]On 30 January 1995 Mr Ingram Hill produced a Briefing Paper for the Directors of EBT1 to be discussed at that meeting. REBTL alleges that this briefing paper contains misrepresentations. First it is said that it was simply not true that the level of funding required to operate the ESOP had “risen to an unacceptable level”, and that the new proposal was “in line with the original objectives of 1986.” However it seems to me that the level of funding required was a matter for Roadchef, in the shape of Mr Ingram Hill, from time to time. Secondly there was the loan from UTB secured on 2,147,370 shares. A carrot was offered in the proposal that the shares would be transferred to EBT2 so that the loan and all tax charges would pass out of EBT1.[53]The alleged misrepresentations (called “the warehouse representations”, “the funding and cost representations” and “the representations regarding the objective of the ESOP”) are contained in the following paragraphs of the briefing note:
“Proposals for the future of EBT1 …the level of funding that is required to operate the ESOP has risen to an unacceptable level and…steps must be taken to reduce the short and long term commitment by the Company to the Scheme. Short of halting the allocations and freezing the Scheme, the Company has agreed to a reduction in the level of allocated shares to employees during the last two years. After further consideration, it is proposed that the total number of shares available for issue in the ESOP should be reduced to the maximum of 12.1/4% of the total issued equity e.g. 1,298,500 shares… This is…at a level that the Company can reasonably afford to keep funding. Why move the shares to another Trust The proposed arrangement will leave EBT1 as the fully paid up distribution Trust on which the Roadchef ESOP is seen to be based. The level of holding and recycling of shares will be seen to be at a level that is reasonable for a private Company and will not cause the banks any concern. The EBT2 will become the non-distributive warehouse Trust for Company shares and all debt that is outstanding will be placed within it. As this is guaranteed by the Holding Company, this will simplify the current debt arrangement held by the Trusts. The Trust directors of the two EBT Companies will have different objectives- one to distribute and one to hold.”

Why move the shares to another Trust

[54]Thus there appeared to be a representation, the warehouse representation, that EBT2 would hold shares, at any rate in the short to medium term, and not distribute them.[55]Mr Ingram Hill’s explanation of the warehouse representation was that it was never intended as a representation that the shares in EBT2 would never be distributed. The expression “warehousing” was used as shorthand for shares bought back from non-ESOP shareholders As Mr Mansley said in a letter to Mr Jesson of UTB dated 17 March 1995, “In retrospect, we should have put the “warehoused” shares in a separate Trust. This was recognised a few years ago when EBT2 was formed and a major tranche of bought back shares was placed within EBT2…. So long as EBT1 contains an element of “warehoused” shares, the original intention of the Board, namely 12.25% in the ESOP, becomes unclear. We believe it is important that there is a clear distinction between those shares available for distribution through the ESOP and those which are being held in a “warehouse””[56]Mr Ingram Hill contended that in this context options were not a distribution unless the options were exercised. I agree with Mr Jones’s riposte that the logical effect of this answer is that EBT2 could therefore hold the shares and grant options over the entire number of shares without there being any untruth in the warehousing representation.[57]At the Board meeting itself on 6 February 1995, at which Mr Ingram Hill was present and he was appointed a fifth director, the transfer was approved. The directors of REBTL were unaware of the fact that Mr Ingram Hill would or indeed could receive the shares that were being transferred. The foggy understanding of Ms Latham, Mr Anderson and Mr Warwick was that the shares would remain in some way available to the ESOP. I should say that I give particular credence to Ms Latham’s evidence in that she was evidently entirely truthful and her evidence was given for the defendants although it was in the event by no means supportive of their case. She commented:• The discussion at the meeting was only some 10 to 15 minutes in length, the majority of which was spent by Mr Ingram Hill explaining his paper. I note that the meeting was immediately followed by a meeting of the SPS Trustee and that the timings on the minute show that the REBTL meeting only lasted for a maximum of 40 minutes.• There was no discussion of any alternative proposal to reduce the cost of the ESOP to Roadchef.• She did not have the EBT2 trust deed at the meeting and had never seen it. She had no real idea of what it contained although she knew in general terms that it was an executive share scheme and that options were available.• As no-one from NBST raised any problem she assumed they had power to make the gift. No other option was discussed.• She understood from the briefing paper that in some way moving the shares to EBT2 would save the company money so it could afford the ESOP. She said she thought the reference to EBT2 becoming the non-distributive warehouse trust for the shares meant that the shares would not be moved out of that trust but that it would be a holding trust which would somehow still be available to the ESOP.• There was no mention at any time, before, during or after the meeting, that the transferred shares would be for the benefit of senior management and that Mr Ingram Hill might be granted options over the shares. At all events, she was unaware that shares in EBT2 were to be used for an unapproved share option scheme in favour of Mr Ingram Hill. Crucially, she was not aware that on 12 January 1994 RMTL had agreed to borrow £1m from Barclays for the purpose of acquiring Mr Edgington’s shares (which it had done on 3 February 1994) and that this loan was guaranteed by Roadchef.• She felt that in reality they had no choice but to transfer the shares to EBT2.[58]There was a dispute as to whether Mr Anderson, who attended the meeting on behalf of NBST, gave any advice to his fellow trustees at the meeting. Ms Latham’s oral evidence (in contradistinction to her witness statement) was that Mr Anderson said very little at all and did not give any advice. Mr Anderson himself said that it was not his role to give advice and he did not do so.[59]Mr Anderson said that he understood that the reason for the transfer of shares from EBT1 to EBT2 was to reduce the future costs of the ESOP but confirmed that at no stage, whether before, during or after the meeting, was there any mention of the fact that Mr Ingram Hill was to be granted options over the shares transferred.[60]Mr Warwick also said that he did not recall Mr Anderson saying anything at all. In these circumstances I do not accept the defendants’ assertion that Mr Anderson gave advice at the meeting that it was within REBTL’s powers to transfer shares to EBT2.[61]Mr Warwick made the following comments in his evidence:• Mr Ingram Hill had a dominating character and the meeting on 6 February 1995 was no exception.• There was no substantive discussion about transferring the shares from EBT1 to EBT2 by way of a gift. He said, "I did not really understand the full implications or ramifications of what was going on and got the impression that others there were similarly in the dark. No reference was made to either of the trust deeds. No legal advice was given by or sought from Mr Mark Anderson of New Bridge Street Trustees Limited ("NBST") or anyone else. As I recall, Mr Anderson barely said anything throughout the entire meeting…"• In relation to the warehouse: "I just thought that the shares would be taken out of distribution and held in EBT2 for the benefit of employees generally".• It was not made clear that the shares would then be outside the ESOP. I had not appreciated this latter point. I am not sure whether the other Board members had either."• Mr Ingram Hill did not state whether he had obtained any professional advice on the options open to REBTL in respect of the shares and the apparent costs of running the ESOP."• Mr Ingram Hill went through his briefing paper quite swiftly and coherently, but that was all that was done. He led the discussion.[62]At the Board Meeting of Roadchef’s directors held on 24 February 1995, “It was noted that the Trustee companies had agreed that shares currently held with EBT1 should move to EBTII. Unity Trust Bank had been asked to release their charge purely relying on the guarantee from [Roadchef] in order that the shares could be gifted across without tax liability. At a later date a unity Trust charge could be put in place with EBTII if necessary. The Company was still awaiting a positive response from Unity Trust…”[63]On about 28 March 1995 UTB agreed to release the Roadchef loan to EBT1 subject to the guarantee by Roadchef remaining in place.[64]At the next Board meeting of REBTL on 10 November 1995, Mr Warwick’s evidence was that Mr Ingram Hill still did not mention that he had been granted options over the shares which had previously been held in EBT1. Mr Warwick said (and this was repeated as Mr Anderson’s “clear understanding” in a letter of 1 March 2000 from Mr Anderson to Mr Mathews of Fox Williams) that he assumed that the Board thought that the shares were still being warehoused in EBT2 for the benefit of employees generally.[65]Following this Board meeting Mr Ingram Hill advised that there would be no limit on eligible shareholders’ rights to sell their shares “as Roadchef has adequate funding available.” The briefing paper for the Board meeting said that Roadchef, “would purchase…the maximum number any eligible employee had rather than a minimum number as happened in the past, and match it against funds available in EBT2.” Unknown to the employees concerned, the shares were acquired by EBT2 rather than EBT1.[66]On 14 July 1995 Roadchef in General Meeting resolved in favour of a scrip issue in relation to shares in Roadchef.[67]Thereafter RMTL formally entered into a loan agreement with UTB but without a charge on the shares, UTB relying entirely on its guarantee from Roadchef.[68]On 10 June 1998 Mr Ingram Hill exercised the options over the shares he had acquired from EBT2 and in July 1998 Roadchef was sold to Nikko Corp. Witnesses[69]I heard evidence from many witnesses over 10 days of evidence, Irene Gee (now Mrs Cartwright), Mr Tankel of NBSC and NBST who attended under a witness summons, Mr Edgington, Ms Chantal Szymanska (who ran Roadchef’s accounts department, was made Financial Director of Roadchef from 10 April 1992 and was Roadchef’s company secretary in May 1992 until August 1994 and REBTL’s company Secretary until June 1994), Mr Warwick (company secretary of Roadchef from January 1995 and also company secretary of REBTL and of the SPS), Ms Tyler (who worked at NBSC until 1989), Ms Latham and Mr Ingram Hill. In addition three witness statements were read, including those of Mark Anderson and Richard Young.[70]Mr Ingram Hill was cross-examined over several days. He was a persuasive and to some extent sympathetic man. I believed him when he said that he did not trouble with legal matters but relied on Roadchef’s legal advisers. It was put to him that he imposed his will on others, and he plainly did, but that may well have been why he had become the chief executive of Roadchef and not those others. Nevertheless I do find that he was manipulative in the ways to which I shall refer.[71]Ms Szymanska said that, “It started to become clear to me from towards the end of 1993 onwards that TIH wanted to sell Roadchef and that he was not supportive of the ESOP because he regarded employee share ownership to be unattractive to potential investors. In the months leading up to me leaving Roadchef, it became increasingly clear to me that TIH wanted more and more control. He was keen to sell the business. There was also talk at one stage of moving the whole operation to Swindon. I felt unsettled during this time and I did not feel that there was a future in the company. I could see what TIH was trying to do with the ESOP- wind it down…I did however believe that TIH was being manipulative…I became increasingly uncomfortable with what I thought was TIH’s attempts to wind down the ESOP and gain more control of Roadchef so that it could be sold… ”[72]Mr Ingram Hill would take issue with this assessment, pointing to the fact that he robustly turned down the offer of a motorway services company called Pavilion to buy Roadchef in 1993. It is also undoubtedly the case that Ms Szymanska was a disaffected employee and may have been (as she alleges) sidelined from dealings with the ESOP for this reason. There were certainly two views about the conduct of Roadchef and the ESOP. However, Ms Szymanska stuck to her guns in saying that she was always very aware that Mr Ingram Hill’s ultimate goal was to obtain control of Roadchef’s shares.[73]Having heard all the witnesses I accept Ms Szymanska’s view that Mr Ingram Hill is manipulative and pushed through key decisions through sheer force of personality and without regard to niceties.[74]I have no doubt that Mr Ingram Hill was, or at any rate now is, deeply unpopular with many of his colleagues at Roadchef. I have never felt an atmosphere in court such as that I observed when he was being cross-examined. That may be because of a perception that he has lined his pockets at the employees’ expense and I make it clear that I make no findings about whether or not the perception and dislike founded on it was justified.[75]When Ms Szymanska, an able and experienced chartered accountant, was being cross-examined she kept bursting into tears, evidently feeling that she had been bullied by Mr Ingram Hill. I should emphasise that he behaved impeccably in court, not looking at her or seeking to intimidate her in any way. However, it was evident that she found his presence in court difficult. Mr Edgington, Mr Warwick and others were suspicious of him and his motives as well. Mr Warwick described him as “a dominating character” with “a dominating influence” over the board of REBTL, saying, “I always found TIH to be secretive. His whole approach to management seemed to be to exclude the majority of staff from his thought process and only include them in matters relating to their specific duties or where he had already made a decision and knew that they would follow him or not contradict him”[76]One must stand back from the transactions and see what actually happened, namely that the EBT1 shares were all acquired by Mr Ingram Hill. It is instructive to note Mr Tankel’s comment that he did not consider what use would be made of the shares once they had been transferred into EBT2. He said, “I think if I had known…[that]…they would have been allocated to Mr Ingram Hill, then I think I might have questioned whether, in fact the rationale for this [the transfer] was correct…. Q…. what you are saying is it might have caused you to doubt whether the explanation about the company not being able to afford was correct? A. Correct…. Q. …the mere fact that the shares having got into EBT2 might…be the subject of options granted to Mr Ingram Hill wouldn’t necessarily change that, would it?... A. It is conceivable that the trustees…could have taken the decision, I guess…because they just needed the money or their loan to be taken over in this case, but I think it would have been a much harder decision for them.”[77]Despite Mr Ingram Hill’s protestations that it did not cross his mind that EBT2 would grant options to him of the transferred shares, that is what happened and on the face of the documents there was a fixed plan to that effect at latest on 4 April 1995. Indeed Mr Ingram Hill speaks of a meeting at Binder Hamlyn on 30 March 1995 at which the matter had already been resolved. There is an attendance note made by Mr Hurdley 4 April 1995, which reads as follows:
“Tim Warwick called. 1. They were now ready to transfer further options to Tim. 2. EBT1 had approved the transfer of the relevant shares across to EBT2. This was being done by way of gift. 3. We now needed to do the same exercise, as before, to grant options to Tim. He thought the number of shares was likely to be 2.45 shares at £1.25 per share (the earlier price was £1.20). 4. He could be here tomorrow if required. 5. Meetings for the Holdings Company were being organised, with Martin in the Chair. 6. If he did come here he would be coming in probably at around 1.00pm.”
[78]Within two months of the resolution to transfer and within hours of what was believed to be the actual transfer, the paperwork was in place. On 6 April 1995 Roadchef resolved that the options be granted. There was a matching resolution at a meeting of RMTL on the same day, and the Board minutes contain the following passage:
“It was further noted that by letter dated 17 May 1994 Roadchef had informed the Company, in its capacity as a Trustee of the Trust, of the policy of Roadchef in relation to the Trust.”
That must be the “policy” described in paragraph 43 above, which can only be described, as Mr Jones did so describe it, as an exercise in “papering the file”.[79]Mr Ingram Hill suggested in evidence that the idea of the grant of options came from Richard Young of Binder Hamlyn who made it clear that Roadchef needed to demonstrate to the banks what was going to be done with EBT2. However apart from Mr Ingram Hill’s assertion, there is no evidence to this effect; indeed the evidence from Mr Young is to the contrary. The information memorandum sent to the banks in June 1995 does not mention the options. Mr Young of Binder Hamlyn’s evidence was as follows (my emphasis):
“In one of my initial conversations with Martin Chapman of Midland, one of the issues he raised was that the ESOP was a drain on Roadchef’s profit and loss account. He also voiced concern about the control of Roadchef shares, where historically the ESOP had a 20% plus shareholding, whereas the banks preferred unallocated shares to be at around the 5 or 10% mark. Essentially the banks wanted to talk to the people with control and to know who had control of the Company’s shares. The ESOP acting as a drain on the profit and loss account was an extra complication to our discussions. On the subject of control and who held Roadchef’s shares, I also recall a conversation with Tim Ingram Hill in April 1995, to the effect that he told me that he had been granted options over shares, which was a further factor to reassure the banks. Being able to reassure Martin Chapman that the ESOP Trustees had decided to transfer some of their shareholding out of the ESOP and that the ESOP costs were being dealt with at the same time meant that an important issue for that bank had been dealt with. Midland were pivotal in being the first to agree to lend money over 10 years. Paul Clarke of Barclays had told me that 10 years was the limit of what Barclays had wanted to contemplate prior to Midland agreeing to a longer term facility. Once Midland had agreed to the extended debt maturity profile over 17 years, the other three members of the syndicate then came on board…”
[80]When in July 1999 the General Secretary of GMB queried the transfer and the options, Mr Ingram Hill was asked what advice he had received and did not mention his allegation that Mr Young had advised him to grant the options. Indeed he mentioned it for the first time in his first witness statement in this action.[81]While it is true that other senior executives were nominated as potential beneficiaries by Roadchef, in the event Mr Ingram Hill was the only person who remained eligible to benefit and who did benefit. As appears from Mr Hurdley’s note of advice in relation to the acquisition of Mr Edgington’s shares, EBT2 was treated in effect as Mr Ingram Hill’s own trust.[82]Thus I do not accept Mr Ingram Hill’s assertion that, he “absolutely…never at this stage [meaning the meeting of 6 February 1995] ever considered any question of option over these shares”. Moreover I do not accept that the meeting was held “to ratify a decision” already taken at the December meeting of REBTL to transfer shares from EBT1 to EBT2. I have already decided that no such decision had been taken.[83]The options (for which he paid nothing) dealt Mr Ingram Hill all the cards; if the value of the shares went down, he did not have to exercise the options. If on the other hand they went up, he would make a huge profit. He was in the position to negotiate the take-over of Roadchef. In fact he did negotiate such a takeover, the price did rise and he did make a killing.[84]Accordingly I find as a fact that Mr Ingram Hill had formed the intention by the time of the meeting of 6 February 1995 to obtain options over the shares which REBTL resolved at that meeting to transfer.[85]Mr Ingram Hill insists that the purpose of the transfer was to placate the banks who were required to fund Roadchef. I accept that he had mixed motives. A major issue for Roadchef from 1993 onwards was its need to refinance its substantial debt. Undoubtedly Mr Ingram Hill was under pressure from the banks from whom he was seeking refinance on behalf of Roadchef, takeover proposals from Pavilion in 1993, refinancing from Granville the same year, from Hambros and the Prudential and then and from a syndicate of banks in 1994/5. He required control and the banks were unhappy at the size of the unallocated shareholding in EBT1. Therefore part of his motive was to secure Roadchef’s commercial aims.[86]It is an insufficient answer to this to say, as Mr Jones sought to do, that EBT1 could simply have reduced the number of allocations in accordance with Mr Tankel’s advice of 20 October 2004. Control of a large tranche of Roadchef’s shares would still have been with the EBT1 trustees, whose duty was to the employees rather than to Roadchef’s management. However Mr Ingram Hill had no answer to the question put to him that he could have exerted control through his voting rights over shares owned by Mr and Mrs Lindley. All he said was, “that didn’t occur to me at all.”[87]Again, I doubt whether it is right, as Mr Jones asserted, that cutting funding to the ESOP would not affect Roadchef’s financial position as Roadchef would guarantee the loan from UTB whether it was made to EBT1 or to EBT2. Mr Ingram Hill’s point was that it was the transfer (whether, as initially envisaged) by way of sale or (as in the event implemented) in exercise of a power that enabled the refinancing to go ahead.[88]Nevertheless I have no doubt that Mr Ingram Hill’s motives were indeed mixed in that while he had Roadchef’s interests in mind he also saw, and took, the opportunity to make a big profit for himself at no cost. The Transfer from EBT1 to EBT2[89]There is as I have said a trust issue whether the transfer from EBT1 to EBT2 was(a) entirely valid,(b) voidable or(c) void.[90]Clause 1 (4) of EBT1 defines the expression “the Beneficiaries” to mean:
“the employees from time to time of the Company [namely Roadchef] and any subsidiary of the Company…which is a participating company in relation to any profit sharing scheme established by the Company and approved in accordance with part I of schedule 9 to the Finance Act 1978 and “Beneficiary” has a corresponding meaning”
[91]By Clause 2 it was provided that the Trust Fund should be held upon trust to pay or apply income and capital to or for the benefit of all or any one or more exclusively of the other or others of the Beneficiaries in such shares and in such manner generally as the Trustees should in their absolute discretion think fit, subject to three provisos, two of which may be relevant in the present case, namely, “(i) No such payment or application shall be made to or for the benefit of any Beneficiary if he (either on his own or with his relatives [as defined]) is or would as a result thereof become the beneficial owner of more than 25 per cent of the ordinary share capital (within the meaning of section 526 (5) of the said Act) of the Company… (iii) No property which shall have become comprised in the Trust Fund as a result of a disposition made to the Trustees by the Company or any other close company shall be applied for the benefit of any person for whose benefit the trusts hereof could not permit it to be applied without section 13 (1) of the Inheritance Act 1984 thereby failing to apply to such disposition”[92]The power relied on as justification for the transfer is that contained in clause 4 (1) of EBT 1. This reads as follows:
“NOTWITHSTANDING anything hereinbefore contained and without prejudice to the generality of the foregoing it shall be lawful for the Trustees in exercise of their foregoing powers and discretions to pay or apply capital monies for the benefit of all or any of the Beneficiaries (a) by transferring the same to the trustees of any other settlement to be held by them on the trusts applicable to capital monies comprised in such settlement if such transfer would not infringe the rule against perpetuities and if the provisions of such other settlement shall in the opinion of the Trustees be such that such transfer would be beneficial to the persons whom it is thereby sought to benefit whether or not such other persons may be capable of taking a benefit under such provisions.”
The 25% Rule[93]There is a preliminary question whether the transfer was outside the power at the outset because of the 25 per cent rule. In other words, was Mr Ingram Hill entitled to take any benefit as a Beneficiary of EBT 1 which could enable him to benefit under EBT 2?[94]Mr Jones points out that under rule 4 (5) of the Scheme Rules an individual is not entitled to have shares appropriated to him under the SPS if he is ineligible to have shares appropriated to him by virtue of paragraph 8 of schedule 9 to the Income and Corporation Taxes Act 1988 (“TA”). This paragraph, read together with the definition in TA s. 187 and paras 37-39 of TA Schedule 9, prohibits a person from receiving appropriations where he is the beneficial owner of or able to control (including control by way of share options) more than 25% of the ordinary share capital of the company. The effect of this definition is incorporated into clause 3 (1) of the SPS.[95]Mr Jones submits that as the ESOP was in effect constituted by EBT1 and the SPS, the definition of “owner of more than 25 % of the share capital” in EBT1 should be given a wide purposive construction and should mean the same as it does in the SPS.[96]There are two problems with this submission. First, EBT1 was not technically part of the ESOP and did not require approval by the Inland Revenue in accordance with Part I of schedule 9 to the Finance Act 1978 or its successor, Schedule 9 to TA. Secondly and crucially, there is an express definition of what is meant by “the ordinary share capital”, namely “within the meaning of section 526 (5) of the said Act”, meaning the Income and Corporation Taxes Act 1970. That subsection read as follows:
““ordinary share capital”, in relation to a company, means all the issued share capital (by whatever name called) of the company, other than capital the holders whereof have a right to a dividend at a fixed rate or a rate fluctuating in accordance with the standard rate of income tax, but have no other right to share in the profits of the company”
[97]Control through share options is accordingly excluded. EBT 1 Clause 2 (iii)[98]Another preliminary question is whether Mr Ingram Hill was ruled out as a beneficiary of EBT1 and thus of EBT2 because of clause 2 (iii) of EBT1. The only persons nominated (by resolutions dated 17 May 1994, October 2004 and July 2007) to benefit from EBT2 at the relevant time were Mr Ingram Hill, a Mr McLellan, a Mr Denning, a Mr Mansley and a Mr Broughton.[99]At my request I was taken through the legislation (including the many negatives contained in Clause 2 (iii)) by Mr Brindle. It is I believe common ground that tax will not be payable under s. 13 (1) of the Inheritance Tax Act 1984 if, but only if, the Trust Fund is applied to all or most of the employees of the company. The broad thrust of the inheritance tax legislation is that s. 86 (1) applies to trusts exempt from inheritance tax provided that there is no disposition from a close company which does not benefit employees as a whole. Again, it is common ground between the parties that the only application of Clause 2 (iii) is to shares comprised in the Trust Fund originating from Roadchef. Most of the shares came from other shareholders but a small number did originate from Roadchef, being the proceeds of a key man insurance policy.[100]However there are several disputed issues. First, Mr Jones argues that apart from an initial shareholding emanating from the Gee family all the shareholding comes from Roadchef. He relies on the fact that the EBT1 Trustees would acquire shares from money given to them by the trustees of the SPS. This would be the same, he asserts, as the money coming directly to the Trustees from Roadchef. It would be a strange result, he submitted, if section 13 did not apply in circumstances in which SPS pays money to EBT1 to buy shares for the express purpose of discharging a loan charged against those shares, a loan which was guaranteed by Roadchef. However I do not think that he is correct. The SPS was the scheme entity required to be registered for fiscal purposes, not EBT1, and there has been no disposition made “to the Trustees” by Roadchef.[101]Secondly, Mr Brindle argues that as shares were bought from money added to EBT1 by Roadchef this is insufficient to trigger the operation of s. 13 (1) of IHTA 1984 since Clause 2 (iii) of EBT1 requires the shares themselves to have originated from the company. I disagree. Clause 2 (iii) merely requires property to have become comprised in the Trust Fund “as a result of a disposition made to the Trustees by [Roadchef]”; it does not require the disposition to have been of the shares themselves. To provide otherwise would make avoidance of the combined operation of s. 86 and s. 13 IHTA 1984 all too easy.[102]Thirdly, Mr Jones prayed other parts of the IHTA 1984 (notably s. 13 (2) and s. 13 (4)) in aid of his argument that Mr Ingram Hill was disqualified from benefiting under EBT1. Again, however, I do not accept the argument since only s. 13 (1) IHTA 1984 is applied by clause 2 (iii).[103]Fourthly, on the basis that Clause 2 (iii) applied only to a minority of the shares, how would Clause 2 (iii) operate? Mr Brindle submitted that once the proceeds of the key man policy were exhausted, that would be an end of the matter. Mr Jones pointed out that there were subsequent scrip issues but he did not really address the point other than to say (I think) that clause 2 (iii) would have to be applied pro rata in some way.[104]The problem is that the court raised the question of whether clause 2 (iii) was applicable and the parties never really addressed it in detail. All I can say at this juncture is that I ought to bear in mind that some of the shares in EBT1 emanated from a disposition from Roadchef to the Trustees. Pitt v. Holt, Futter v. Futter [2013] UKSC 26, [2013] 2 WLR 1200[105]In Pitt v. Holt Lord Walker of Gestingthorpe, with whom the other members of the Supreme Court agreed, handed down a judgment which definitively explained the law concerning the so-called rule in Hastings-Bass, derived from In re Hastings-Bass, deceased [1975] Ch 25. For present purposes, I summarise the general principles enshrined in that case as follows:• The Court has jurisdiction to intervene, if it thinks fit to do so, with a degree of flexibility where a trustee has failed to perform its decision-making function.• It had been the tendency of the court to allow trustees to take advantage of their own inadequate deliberation by applying to set aside their own decisions on the ground that they were void, particularly in circumstances which enabled the beneficiaries to avoid paying fiscal liabilities consequent upon such decisions. The Supreme Court held that the rule in Hastings-Bass had been diverted from its original and true course. As Lord Walker said at [2], “…since the turn of the century there have been several cases concerned with family trusts, and in particular with tax-planning arrangements involving trusts, where the arrangements have for one reason or another proved unexpectedly disadvantageous, and the court has been asked to restore the status quo under the Hastings-Bass rule. The Supreme Court decided that this was not the true scope of therule in Hastings-Bass.• Trustees who take a decision, acting within their powers, acting on apparently competent professional advice, are not in breach of duty merely because the advice turns out to be wrong. In such circumstances the court will not interfere.• A decision taken by the trustees in the exercise and within the scope of their powers is voidable (not void) if the trustees are in breach of their duty to take into account all relevant matters, including fiscal considerations, (“inadequate deliberation”).• Only a decision taken by the trustees that is outside the scope of their powers is void rather than voidable.[106]Thus, argued Mr Brindle, as Clause 4 (1) of EBT 1 allowed the transfer to take place, and as the Trustees of EBT1 acted on the advice of Mr Anderson, (although I find that they did not), the decision to transfer was valid. At most, it was voidable rather than void. In the latter case, the argument continued, REBTL as the Trustee of EBT1 could not bring an action to set aside its own decision reached as a result of inadequate deliberation. He cited Lord Walker’s statement at [69]:
“It is a striking feature of the development of the Hastings-Bass rule that it has led to trustees asserting and relying on their own failings, or those of their advisers, in seeking the assistance of the court…in general it would be inappropriate for trustees to take the initiative in commencing proceedings of this nature. They should not regard them as uncontroversial proceedings in which they can confidently expect to recover their costs out of the trust fund. ”
[107]It seems to me plain almost beyond argument that the exercise of the power cannot be said to be wholly valid. The Trustees of EBT1 did not turn their minds at all to the criteria for exercise of the power, (about which they only had the foggiest idea, not looking at the terms of the power at all), they did not consider the terms of the EBT2 trusts and they seemed to rely on the fact that a transfer had been effected before, on 4 July 1988.[108]Mr Jones argued that the decision was void but, in the event that it was merely voidable, the change in trusteeship meant that REBTL falls within Lord Walker’s observation (also in [69]) that:
“There may be cases in which there is for practical purposes no other suitable person to bring the matter before the court…”
[109]The first question however is whether the transfer was indeed void or only voidable. I have to say that I am doubtful whether there was anything that could be said to be an exercise of the power at all, either in form or in substance. Mr Brindle relied on the principle that where trustees have only one power they will be taken to have exercised it, citing Stannard v. FisonsPension Trust [1991] Pens LR 225 at [9] and Davis v. Richards & Wallington Ltd [1990] 1 WLR 1511 at 1530. It seems to me that those cases are a far cry from the present one, as they merely apply the principle that the court will not allow matters of form to prevail over matters of substance. However, I do not have to decide the point because in my judgment the exercise was outside the power in any event.[110]I note the observation of Lord Walker at [24], citing (at [25]) with approval what Lloyd LJ had said in the Court of Appeal, as follows (my emphasis):
“[24]…He [Lloyd LJ] thought that the Court of Appeal [in Hastings-Bass] had already decided the case on the ground that the advancement, so far as not struck down by the rule against perpetuities, must stand unless it could not, in that attenuated form, reasonably be regarded as beneficial to the advance. That is an objective test which does not call for an inquiry into the actual states of mind of the trustees. [25] Lloyd LJ expanded this line of thought in para 66: ‘If the problem to be resolved is what is the effect on an operation such as an advancement of the failure of some of the intended provisions, because of some external factors such as perpetuity, it is not useful to ask what the trustees would have thought and done if they had known about the problem. The answer to that question is almost certainly that they would have done something different, which would not have run into the perpetuity or other difficulty. It is for that reason that the test has to be objective, by reference to whether that which was done, with all its defects and consequent limitations, is capable of being regarded as beneficial to the intended object, or not. If it is so capable, then it satisfies the requirement of the power that it should be for that person’s benefit. Otherwise it does not satisfy that requirement. In the latter case it would follow that it is outside the scope of the power, it is not an exercise of the power at all, and it cannot take effect under that power.” ‘If the problem to be resolved is what is the effect on an operation such as an advancement of the failure of some of the intended provisions, because of some external factors such as perpetuity, it is not useful to ask what the trustees would have thought and done if they had known about the problem. The answer to that question is almost certainly that they would have done something different, which would not have run into the perpetuity or other difficulty. It is for that reason that the test has to be objective, by reference to whether that which was done, with all its defects and consequent limitations, is capable of being regarded as beneficial to the intended object, or not. If it is so capable, then it satisfies the requirement of the power that it should be for that person’s benefit. Otherwise it does not satisfy that requirement. In the latter case it would follow that it is outside the scope of the power, it is not an exercise of the power at all, and it cannot take effect under that power.”
[111]The question under this head is therefore whether the transfer is capable of benefiting the relevant beneficiaries. Mr Brindle submitted that the transfer is only required under the clause to be beneficial to the persons whom the transferee settlement seeks to benefit by the transfer; thus the primary question is not whether there is any benefit to the beneficiaries of the transferor settlement. The requirement (“and if the provisions of such other settlement shall in the opinion of the Trustees be such that such transfer would be beneficial to the persons whom it is thereby sought to benefit”) to consider the provisions of the transferee settlement is solely for that purpose and not for the purpose of considering benefit to the beneficiaries of the transferor settlement.[112]I cannot however accept that proposition. It ignores not only the fact that the Trustees owe their duties to their own beneficiaries and not to any others, but the important point that the power under Clause 4 (1) can in accordance with its express terms only be exercised, “in exercise of their [the Trustees’] foregoing powers and discretions to pay or apply capital monies for the benefit of all or any of the Beneficiaries.”[113]Mr Brindle was forced to accept the logical extension of the principle he was propounding that it followed, if he was right, that as the Trustees were only under a duty to consider the benefit to the beneficiaries of the transferee settlement, those beneficiaries could be wholly separate from and unrelated to the Beneficiaries, such as the beneficiaries of a family trust with no connection to Roadchef employees at all. That cannot be right, although it is true that once the Trustees had formed the requisite view they were not under a duty to supervise the application of the Trust Fund by the trustees of the transferee settlement.[114]Accordingly I find that the transfer had to be capable of benefiting the Beneficiaries of EBT1.[115]The transfer was part of a plan to grant benefits to Mr Ingram Hill or, put at its lowest and most favourable to Mr Ingram Hill, to grant benefits to at most four senior employees of Roadchef. Options were in the event granted to Mr Ingram Hill alone to purchase the transferred shares at the price obtaining at the date of the grant. Despite Mr Brindle’s valiant efforts to persuade me to the contrary, a transfer to the trusts of EBT2 cannot, in the events which happened, be regarded as for the benefit of the Beneficiaries as defined by EBT1.[116]I do not accept Mr Brindle’s submission that the beneficiaries of the two trusts were largely the same and that what actually happened was not a matter for REBTL. The beneficiaries of EBT2 were only such employees as Roadchef might nominate, and REBTL made no inquiry into this; indeed as a result of what Mr Ingram Hill had said, Ms Latham, Mr Anderson and Mr Warwick all thought that EBT2 was going to be used as some sort of alternative feeder trust for the ESOP in that the shares would be held in it for the benefit of employees generally.[117]However, Mr Brindle has another string to his bow. He contends that the concept of benefit is very wide. Ms Latham said in her witness statement, “We acted in the best interests of the beneficiaries in transferring the shares in 1995 as it meant we could keep the scheme going for their benefit.” The transfer was thus beneficial to the Beneficiaries because the transfer was, Mr Brindle says, the only way of making EBT1 financially viable. The argument is that comfort was provided to the banks by removing the Roadchef shares from the ESOP and putting them into a settlement where only beneficiaries who were officers of Roadchef could benefit from them.[118]There are however two possible challenges to this construction. First, on the facts. Mr Jones says that there is no evidence that REBTL would have gone under or had to refinance but for the transfer. This is true, and there is certainly no evidence that this was a matter considered on the figures by the REBTL board. How could REBTL have made any decision on the best interests of EBT1’s beneficiaries without considering the value of the shares given away or any other matter of financial viability? In truth the other directors of REBTL simply did what they were told by Mr Ingram Hill, believing they had no choice. All the evidence points to improper pressure exerted by Mr Ingram Hill. He was the entrenched chairman of Roadchef, he had total control over EBT2 (from which he had ensured through amendment that he could benefit), he exerted actual pressure over the trustee of EBT1 and he was appointed a director of REBTL at the meeting of 6 February 1995.[119]The second challenge is on the construction of Clause 4 (1). The clause requires the Trustees first of all to consider the persons whom they wish to benefit, who must be the Beneficiaries. They then must look at the terms of the transferee settlement:
“if the provisions of such other settlement shall in the opinion of the Trustees be such that such transfer would be beneficial to the persons whom it is thereby sought to benefit.”
Mr Brindle argues that the word “thereby” applies only to the transferee settlement but, as I have said, that would make a nonsense of the clause since a transfer out to any trust, even one with completely unrelated beneficiaries, would qualify. As Mr Jones put it, “if any transfer would be beneficial, that will do to whomsoever. It simply wouldn’t matter who the potential beneficiaries of the donee trust were, and the only restraint is to check that there’s not something, as it were, counterbeneficial (if that’s a word) in the recipient deed.”[120]I do not say that general benefit (what Mr Jones described as “generic benefit”) might not qualify in some circumstances. However in my judgment it does not in the present case. Mr Ingram Hill described the shares in EBT1 as “surplus”. But they were trust property. As Mr Edgington said in oral evidence, “I don’t think I ever regarded shares held by EBT for the scheme as surplus. They were the scheme, as simple as that. We had extended the scheme, so it was larger than when we originally conceived it. That was its new size and that was in my mind sacrosanct…Unallocated shares are merely warehoused pending allocation… The ESOP had been created to give those shares away to the employees…In my mind the ESOP was set up to allocate the shares it owned and if it didn’t, I think it was always contemplated that there would be some left in EBT1 when a transaction came along and those would simply be divvied up to the beneficiaries, ie all the staff.”[121]Assuming that Roadchef considered that the shares should not have been in EBT1 but should always have been in EBT2, the case is similar to that of a father who regrets having set up a settlement for the benefit of his children but, because the trust fund emanated from him, treats the settlement as still belonging to him.[122]Thus while the fact that the directors of REBTL did not consider the right questions at the meeting of 6 February 1995 might constitute inadequate deliberation I have no doubt that the transfer in this case fell within the parameters of Lloyd LJ’s observation that it was incapable of being properly regarded as beneficial to the Beneficiaries of EBT1 and so it was outside the scope of the power contained in Clause 4 (1) of EBT1. While it is true that REBTL was relieved of the loan liability to UTB, charged on the shares, on any view the transfer diminished REBTL’s net assets. There is a distinction between inadequate deliberation and no discussion of the relevant principles at all in circumstances where the trustee is transferring its assets for no good reason associated with its beneficiaries.[123]This was irrespective of any relevant wrongdoing by Mr Ingram Hill. In other words, whether or not he considered the legality of the exercise of the power himself and whether or not he relied on his legal advisers, and whether or not the claim in deceit is made good, the transfer was in my view void.[124]If I am wrong about this (and I firmly believe that I am not) the question would arise as to the standing of REBTL to bring the action. I agree with Mr Jones that the case is very far from the type of situation mentioned by Lord Walker where trustees wish to have their own decisions reversed for fiscal reasons. REBTL is not now under Mr Ingram Hill’s control and the wish to reverse the decision is because of this rather than merely to gain a fiscal advantage. Further I am told that various diverse sets of proceedings have been brought by employees of Roadchef which have been stayed pending the outcome of this action. There is no properly constituted representative action. This action contains claims for breach of duty which cannot be brought by the beneficiaries and it would therefore seem appropriate for REBTL to bring proceedings under all possible heads. Certainly the beneficiaries consider that REBTL is the appropriate party to bring the claim.[125]It seems to me proper that REBTL should in such circumstances represent their beneficiaries. I therefore find that REBTL does have standing to avoid the transfer. And if the transfer is not void, it is plainly voidable since the board of REBTL did not, at the meeting at which they resolved to transfer shares to EBT2, consider any of the relevant criteria for transfer at all, nor did they receive any advice about the matter. Improper purpose[126]Mr Ingram Hill was involved in the transfer wearing three hats: in his capacity as director of Roadchef, as the ultimate intended beneficiary of the transfer and as a director of REBTL. He did not separate those roles. There are two ulterior purposes: one was to benefit Roadchef, and the other to benefit Mr Ingram Hill personally. He would have brought improper pressure to bear to achieve either end. Both were improper purposes, and the power would not have been exercised if the true position had been explained. In any event, as I have said, the transfer was part of a pre-conceived plan to grant options to Mr Ingram Hill.[127]As the transfer from EBT1 to EBT2 was indeed effected for the improper purpose of benefiting Mr Ingram Hill it is a fraud on the power within the principle in Vatcher v. Paull [1915] AC 372 at 378, expressed by Lord Parker in the following terms:
“[Fraud] in connection with frauds on a power does not necessarily denote any conduct on the part of the appointor amounting to fraud in the common law meaning of the term or any conduct which could properly be termed dishonest or immoral. It merely means that the power has been exercised for a purpose, or with an intention, beyond the scope of or not justified by the instrument creating the power.”
[128]As Mr Brindle himself said in opening, “one is left…with undoubtedly a rather unusual looking decision. You look at it and think what are they doing giving all this money from one to the other’.” Mr Brindle said that it could be explained to the satisfaction of the court. To my mind it has not.[129]Where a decision is made a by a group such as a board of directors, and a wrongful intention is held by some but not all who supported the decision, then the exercise of the power is only bad if it can be affirmatively shown that the decision would not have been taken without the concurrence of the persons with the bad intentions. In the present case, Mr Ingram Hill was the source of the scheme to transfer the approved shares, he was selective in the information he provided to the other directors and he was the sole driver of the decision.[130]I agree with Mr Jones that in the case of mixed motives the Court will apply a ‘but for’ test, namely whether the power to transfer would have been exercised but for the intent to achieve the ulterior purpose or whether the power would have been exercised in any event: Re Turner’s Settled Estates (1884) 28 Ch D 205, Thomas on Powers, 2nd edition at paras 9.85-9.89, Snell’s Equity 32nd Ed at para 10-025-6 and 7-008. I do not think that it would, if the exercise of the power had not been railroaded through at the meeting of 6 February 1995. However, as one of the purposes behind the exercise of the fiduciary power was to benefit Mr Ingram Hill personally in circumstances where he was not entitled to benefit, the exercise of the power is wholly bad in any event: see Snell (above) and Bristol & West Building Society v. Mothew [1998] Ch 1.[131]The effect of an appointment for an improper purpose is that the exercise of the power is void, not voidable: see Cloutte v. Storey [1911] 1 Ch 18 (a decision of the Court of Appeal binding on me) and the observations of Lord Walker in Pitt v. Holt at [61] and [62]. Mistake[132]In view of my findings above, the issue of mistake does not arise but I deal with it in any event. On the fourth day of the trial I gave permission to amend to plead mistake for completeness sake. Again the Supreme Court reviewed and analysed the law relating to mistake and voluntary dispositions in Pitt v. Holt. In that case the Supreme Court decided that whether or not there is a mistake which will be relieved in equity depends on the facts of each case, as (see Lord Walker at [126], “the injustice (or unfairness or unconscionableness) of leaving a mistaken disposition uncorrected must be evaluated objectively, but with an intense focus…on the facts of the particular case.”[133]In order to found the relief there must be a causative mistake which was so grave that it would be unconscionable to refuse relief. The test would normally only be satisfied if the type of mistake was as to the legal nature of the transaction or as to some matter of fact or law basic to it: see at [122].[134]The Supreme Court applied the test in Ogilvie v. Littleboy 13 TLR 399 at 400 where Lindley J said, “…a donor can only obtain back property which he has given away by showing that he was under some mistake of so serious a character as to render it unjust on the part of the donee to retain the property given to him.”[135]In summary, Lord Walker said at [128], “…the apparent suggestion that the court ought not to form a view about the merits of a claim seems to me to go wide of the mark… ‘the fundamental principle that equity is concerned to prevent unconscionable conduct permeates all the elements of the doctrine [of proprietary estoppel]. In the end the court must look at the matter in the round.’ In my opinion the same is true of the equitable doctrine of mistake. The court cannot decide the issue of what is unconscionable by an elaborate set of rules. It must consider in the round the existence of a distinct mistake (as compared with total ignorance or disappointed expectations), its degree of centrality to the transaction in question and the seriousness of its consequences, and make an evaluative judgment whether it would be unconscionable, or unjust, to leave the mistake uncorrected. The court may and must form a judgment about the justice of the case.” ‘the fundamental principle that equity is concerned to prevent unconscionable conduct permeates all the elements of the doctrine [of proprietary estoppel]. In the end the court must look at the matter in the round.’[136]REBTL’s case in mistake is merely pleaded by the addition of the words “and/or because it was a voluntary disposition made by mistake” at the end of paragraph 4.3 of the Particulars of Claim. The mistake relied on arises out of the facts already pleaded. The case presented in the closing submissions relates largely to alleged misrepresentations in the Briefing Paper. However, bearing in mind the facts I have found, it seems to me that relief on the grounds of mistake must follow. Bona fide purchaser for value without notice[137]The burden of proof lies on the purchaser to establish value, good faith and lack of notice: see Barclays Bank v. Boulter [1998] 1 WLR 1 at 8.[138]First there is the question of the liability of the trustees of EBT2, acting as such. They were not purchasers for value but the recipients of a transfer. I do not accept that there was consideration for the transfer in that the trustee of EBT2 took on REBTL’s liability for the UTB loan. In so far as the Roadchef shares transferred were subject to a charge there was still a transfer of the charged shares for no consideration. The second defendants are therefore liable.[139]Secondly, there is Mr Ingram Hill. It is true that he paid for the Roadchef shares in respect of which he exercised his options. However he acquired the options for no consideration so at that stage he was not a purchaser. Mr Brindle submitted that consideration and notice are only required at the date when legal title was obtained, in this case when the option was exercised. However Mr Ingram Hill’s acquisition, in view of my findings, cannot be described as made in good faith. Improper or unconscionable behaviour is clearly bad faith, irrespective of dishonesty: see Yam Seng Ptd Ltd v. International Trade Corporation Ltd [2013] EWHC 111 per Leggatt J at [138] and [141] and Street v. Derbyshire [2005] ICR 97 at [41]-[44].[140]I should add that, as a result of observations I made during the case, I subsequently received written submissions from the parties on the subject of what is a bona fide purchaser for value without notice. There was some objection to my receiving the later submission, but although I read everything de bene esse neither submission altered my view in any event. Breach of Fiduciary Duty[141]Mr Ingram Hill was a director of REBTL at the time of the resolution to transfer, having been appointed at the same meeting. Until 5 April 1988 he had been an individual trustee and thereafter had attended various meetings of the EBT1 trustees on behalf of Roadchef. As a director it is common ground that he owed fiduciary duties to REBTL.[142]The core liability of a fiduciary was described in Bristol & West v. Mothew as follows (at 18):
“The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal…”
[143]As Lord Herschell said in Bray v. Ford [1896] AC 44 at 52, “I am satisfied that it [the no profit rule] may be departed from in many cases, without any breach of morality, without any wrong being inflicted, and without any consciousness of wrong-doing.”[144]I was taken to Regal (Hastings) Ltd v. Gulliver [1967] 2 AC 134, Boardman v. Phipps [1967] 2 AC 46 and other classic statements of the no conflict/no profit rule.[145]A fiduciary can only avoid conflict through the informed consent of his principal. Mr Ingram Hill did not tell the other directors of REBTL that, as I have found, he intended to secure options over the shares once they had been transferred to the trustees of EBT2. On the contrary, he gave the impression that the shares would be held or warehoused by EBT2.[146]Accordingly, he is liable under this head. Deceit[147]There is also a claim in deceit against Mr Ingram Hill. The crucial element is fraud, which will only be proved (see Derry v. Peek (1889) 14 App Cas 337 at 374 per Lord Herschell) when it is shown that the defendant made:• A representation,• which is false,• dishonest (that is to say, made knowingly, knowing it to be untrue, or being reckless as to whether it is true), and• intended to be relied on and in fact relied on.[148]I was referred to the classic statement of Lord Cairns in Peek v. Gurney (1873) LR 6 HL 377 at 403:
“there must …be some active misstatement of fact, or, at all events, such a partial and fragmentary statement of fact, as that the withholding of that which is not stated makes that which is stated absolutely false.”
[149]I was also referred to the statement of Bowen LJ in Angus v. Clifford [1891] 2 Ch 449 at 471, Devlin J in Armstrong v. Strain [1951] 1 TLR 856 at 871,to Hornal v. Neuberger Products Ltd [1957] 1 QB 247, Winn LJ in Doyle v. Olby (Ironmongers) Ltd [1969] 2 QB 158 at 168, Lord Steyn and Lord Hoffmann in Smith New Court Securities Ltd v. Scrimgeour Vickers (Assets Management) Ltd [1997] AC 254 at 274, 280, 284 and 285, Lord Nicholls in Re H (Minors) [1996] AC 563 at 586, Shinhan Bank Ltd v. Sea Containers Ltd [2000] 2 Ll Rep 406 at [26], Conlon v. Simms [2006] EWHC 401 (Ch), [2006] 2 All ER 1024, Rix LJ in AIC Ltd v. ITS Testing Services (UK) Ltd [2006] EWCA Civ 1601, [2007] 1 All ER (Comm) 667 at [256]-[259], JD Wetherspoon Plc v. Van De Berg & Co Ltd [2007] EWHC 1044 (Ch), [2007] PNLR 28, and Dadourian Group International Inc v. Simms [2009] EWCA Civ 169, [2009] 1 Ll Rep 601 at [95]-[108].[150]Mr Ingram Hill’s dishonesty is said to be established by the following factors:• From March 1993 onwards it is clear that Mr Ingram Hill had determined to increase his shareholding. Mr Hurdley advised him that in the circumstances the best way was through the medium of share options.• On 6 July 1993 Mr Tankel advised Mr Ingram Hill that it was not in the best interests of the EBT1 beneficiaries to sell shares unless there was no alternative. An option was discussed whereby Roadchef were to indicate that it would reduce its cost of running the ESOP in which case the EBT1 trustees would have to sell shares to fund its own costs. Three days later Mr Ingram Hill wrote to Lord Cocks, warning him that Roadchef was to stop funding the ESOP. Over the next few days Roadchef’s board and the EBT1 trustees were so informed.• On 3 November 1993 Mr Hurdley advised Mr Ingram Hill to use a trust to acquire shares and explained the amendments required to the EBT2 Trust Deed to allow Mr Ingram Hill to benefit under that deed. On 15 November 1993 RMTL became the sole trustee of EBT2 with Mr Ingram Hill as the sole director and on 2 March 1994 changes were effected to the EBT2 Trust Deed accordingly. Mr Hurdley and Mr Forwood, representatives of Roadchef’s solicitors, were then appointed additional directors.• EBT2 then acquired shares and granted options to Mr Ingram Hill. First, there were Mr Edgington’s shares which were bought with the loan of £1m and over which Mr Ingram Hill was granted share options in May 1994.• Then on 18 October 1994 Mr Ingram Hill expressed a preference for any unallocated shares to be transferred from EBT1 to EBT2. He did not tell the trustees of EBT1 that Mr Tankel advised that the transfer would not be in the best interests of the beneficiaries but instead issued his briefing paper.• As soon as the share transfer from EBT1 to EBT2 had taken place, RMTL and Roadchef arranged for the grant of share options to Mr Ingram Hill.• REBTL deduces from the above that Roadchef’s decision to stop funding the ESOP was a means to increase Mr Ingram Hill’s personal shareholding and not a genuine issue of what Roadchef could afford.[151]It is said that the warehouse representations were false in that it was not intended that EBT2 would hold shares while EBT1 would distribute them, EBT2 was not to become the non-distributive warehouse trust for Roadchef shares, on the contrary it was intended that EBT2 would distribute shares to senior employees nominated by Roadchef, and this was what in the event happened, via the grant of share options to Mr Ingram Hill.[152]Mr Ingram Hill says that this is not what he meant at all. Although he appeared to accept in cross-examination that what he said in the briefing note was potentially misleading, he says that he merely meant to draw a distinction between EBT1 and EBT2. He wanted to remove the potential share ownership from the employees and believed that he was entitled to do so.[153]Secondly, there are the funding and cost representations. It is said that those representations were false in that Roadchef could have continued to be able to afford to provide the funds for the ESOP at a level higher than 12.25%, the level of funding was only unacceptable to Mr Ingram Hill because he knew that if Roadchef continued to fund the ESOP he would not be able to obtain the shares for himself, the level of the ESOP would not in fact cause concern to Roadchef’s bankers, the transfer resulted in no saving to Roadchef because the costs of meeting the loan obligations to UTB (through Roadchef’s guarantee which would remain) would be unchanged as would the costs of buying back leavers’ shares and the only genuine threat was a threat contrived by Mr Ingram Hill for his own benefit.[154]However, as I have said, Mr Ingram Hill’s motives were mixed. I believe that, on the evidence, the banks saw funding the ESOP as a problem and did not want to lend money to a company whose shares were in the hands of, or bound to end up in the hands of, employees. Also, as I have said, such evidence as there is shows that Roadchef did have funding problems and it was a matter for Roadchef how much money went into the ESOP. As again I have said, the fact that Roadchef guaranteed the loan from UTB wherever the shares were is only part of the story. I am not therefore prepared to find that Mr Ingram Hill was guilty of dishonesty in relation to these representations.[155]Thirdly, it is said that the representations regarding the objective of the ESOP were false in that there was no original objective of a level of 12.25% in 1986. Mr Edgington’s evidence was that this percentage simply represented what Mrs Gee was prepared to transfer at the time the ESOP was established. Again, however, there is room for two views and I do not think that dishonesty is made out under this head.[156]I do not therefore believe that deceit is made out. However, it is unlikely that a successful deceit claim will have an impact on the overall quantum of any monies awarded since, even if Mr Ingram Hill acted dishonestly, it is likely that the restorative remedies available to REBTL will be assessed at a higher value than tortious damages for loss. As Etherton J said in London Allied Holdings Limited v Anthony Lee and others [2007] EWHC 2061 (Ch) 253:
“[D]amages are recoverable only to the extent that [the Claimant's] losses are not fully recouped by its claims as equitable owner under a constructive trust. At present, and subject to further submissions, I am not clear what losses would remain after the Claimant's proprietary claims and the taking of an account on the basis of a constructive trust.”
[157]As Mr Ingram Hill is liable to account for the sums received in respect of the shares he received from EBT1 (and/or is liable to account for the profits he has made from them) compensation in respect of both of those equitable remedies will be calculated by reference to the amount Mr Ingram Hill received. As I have not found that Mr Ingram Hill is liable in deceit I do not have to determine the appropriate date for the assessment of damages in tort. I will therefore deal with this matter only briefly.[158]The measure of damages in tort is such as would put REBTL back into the position in which it would have been but for the tort. The general rule is that damages are to be assessed as at the date when the tort was committed. However, as Lord Browne-Wilkinson said in Smith New Court v. Scrimgeour Vickers Asset Management Ltd [1997] AC 254(at 265-268), “The old "inflexible rule" is both wrong in principle and capable of producing manifest injustice. The defendant's fraud may have an effect continuing after the transaction is completed, e.g. if a sale of gold shares was induced by a misrepresentation that a new find had been made which was to be announced later it would plainly be wrong to assume that the plaintiff should have sold the shares before the announcement should have been made. Again, the acquisition of the asset may, as in Doyle v. Olby (Ironmongers) Ltd [itself, lock the purchase[r] into continuing to hold the asset until he can effect a resale. To say that in such a case the plaintiff has obtained the value of the asset as at the transaction date and must therefore bring it into account flies in the face of common sense: how can he be said to have received such a value if, despite his efforts, he has been unable to sell… …the general rule in other areas of the law has been that damages are to be assessed as at the date the wrong was committed. But recent decisions have emphasised that this is only a general rule: where it is necessary in order adequately to compensate the plaintiff for the damage suffered by reason of the defendant’s wrong a different date of assessment can be selected… In many cases, even in deceit, it will be appropriate to value the asset acquired as at the transaction date if that truly reflects the value of what the plaintiff has obtained.”[159]I would add that the defendants take two points on causation of damage with which I should deal. The first is that had an improper transfer not taken place, a proper transfer would have taken place in any event. There was no evidence to this effect which I accept. I therefore reject this argument. Secondly, it is said that if the disputed shares had remained in EBT1, the bid for syndicated finance would have failed; as REBTL cannot establish that it would have been able to sell the lost assets at the price actually obtained for them, departure from the usual rule for assessing loss at the date of the wrong is more likely to work an injustice than to do justice.[160]In my view REBTL is entitled to measure its loss at the date when Mr Ingram Hill received his profit. Only in that way can the beneficiaries recoup what should, according to the argument, have been theirs.[161]However I agree with Mr Brindle that REBTL seeks to gross up its claim for damages on the basis that it will incur tax liabilities on receipt of damages which will reduce the sums available to the beneficiaries. REBTL has amended its claim in this regard, but it does not identify the precise extent of the tax savings that it contends could have been made by REBTL but which would not now be available to it. It is said that REBTL would incur a charge to capital gains tax on any compensation received and beneficiaries will incur a charge to income tax and national insurance on the distributions they receive.[162]It seems to me that this aspect of the claim is too speculative and thus too remote. It is not clear that, as alleged, REBTL would have made the maximum allowable appropriation of shares in each year to maximise tax savings. That had not been done in the past. Secondly, REBTL says that EBT1 would have distributed shares directly to employees outside the scope of the ESOP. It is not clear how this would have been achieved since the shares would have had to have been released from the charge in favour of UTB. If the employees had purchased the shares they would have incurred an income tax liability in any event. In any event, the distribution would only have happened in anticipation of the takeover by Nikko and it is simply not clear that such a purchase would have taken place.[163]Again, it is said that the employees would have taken advantage of their annual allowances to avoid paying capital gains tax, but the shares each would have received appear to be in excess of the amount of the annual allowance in any event.[164]As for income tax, it is said that the employees would have avoided this charge by an exchange for shares in MSA. The problem with this is two-fold. First, it is again unclear that this would have happened and, secondly, the shares in MSA became worthless in any event.[165]Similarly, REBTL relies on a share swap of the ESOP’s Roadchef shares for shares in MSA, allowing the appropriation to be spread over many years. However, MSA wound up the ESOP following the acquisition of Roadchef and in any event its shares were worthless. Accessory Liability[166]I have no doubt that REBTL was in breach of trust in transferring shares to the trustee of EBT2. A person who dishonestly assists another to act in breach of trust or of fiduciary duty is personally liable to compensate the trust or the person to whom the fiduciary duty is owed for losses arising from the breach. Assistance is dishonest for this purpose where the person giving it either has knowledge of facts that mean that giving such assistance transgresses ordinary standards of honest behaviour or a suspicion that it transgresses ordinary standards of honest behaviour combined with a decision not to make enquiries lest that suspicion be confirmed: see Barlow Clowes International Ltd v. Eurotrust International Ltd [2005] UKPC 37; [2006] 1 WLR 1476 at [15], Royal Brunei Airlines v. Tan [1995] 2 AC 378 at 389.[167]While it is necessary for the accessory to have been dishonest it is not necessary for the trustee himself to have been dishonest: see Royal Brunei (above) at 385B-C and 392 G. A company is dishonest where a director, or the controlling will and mind, of the company is dishonest: Crown Dilmun v. Sutton [2004] EWHC 52 (Ch) [2004] 1 BCLC 468 at [193]-[194].[168]The normal remedy for dishonest assistance is a personal rather than a proprietary one; however the position is different if the asset is one that belonged to the trust: See Sinclair Investments (UK) Ltd v. Versailles Trade Finance Ltd [2011] EWCA Civ 347 [2012] Ch 453 at [88], although such a claim is more likely to be characterised as one of knowing receipt, as to which see Sir Terence Etherton in Richardson Anthony Arthur v. the Attorney General of the Turks & Caicos Islands [2012] UKPC 30 at [31]-[32].[169]It is true that Mr Ingram Hill did not tell REBTL that he was proposing to acquire options over the shares transferred to EBT2. It is also true that he was the driving force behind REBTL’s breach of trust. However I doubt whether Mr Ingram Hill can be categorised as dishonest in the required sense. Although he always intended to make a profit he believed that it was legitimate to transfer the shares from EBT1 to EBT2 pursuant to the power contained in clause 4 (1) of EBT1.[170]If Mr Ingram Hill was not dishonest in the required sense, RMTL could not have been dishonest either, since the dishonesty relied on is that of Mr Ingram Hill; RMTL was a company which he controlled in the sense described by Peter Smith J in Crown Dilmun (above). Statutory Relief from Liability[171]Both defendants claim relief from liability pursuant to s. 1157(1) Companies Act 2006, s. 727 Companies Act 1985 and s. 61 Trustee Act 1925.[172]It is my firm view that, honest or not, the defendants could not have been said to have acted reasonably. I note that at the time of the transfer RMTL was controlled by Mr Ingram Hill. Remedies Constructive Trust and Tracing[173]In my judgment the transfer from EBT1 to EBT2 was void and Mr Ingram Hill was not a bona fide purchaser for value without notice. Accordingly, Mr Ingram Hill holds any traceable proceeds of the disputed shares on constructive trust for REBTL and is obliged to account in respect of such proceeds. In addition to the proprietary claim, Mr Ingram Hill has an obligation to account and or pay equitable compensation (reduced by the amount of sums recovered under the proprietary claim) in order to restore the fund to the position it would have been in if the disposition had not been made.[174]A constructive trust may also in certain circumstances arise from a breach of duty. The categories were analysed by Lord Neuberger in Sinclair (above) at [88]-[89] and summarised by the Chancellor in FHR European Ventures LLP v. Mankarious [2013] EWCA Civ 17 at [83]. There are three broad categories, namely Category 1, where the benefit is or was an asset belonging beneficially to the principal, Category 2, where the benefit has been obtained by the fiduciary by taking advantage of an opportunity which was properly that of the principal and Category 3, all other cases. Although this area of the law is in need of overhaul (see FHR at [116]), it is uncontroversial that constructive trusts bind directors who divert opportunities to themselves which ought to have been taken up, if at all, by their companies (FHR at [86]) and benefits are held on constructive trust which are obtained in breach of the no conflict or no profit rule, whether or not the benefit could or would have been obtained by the trust: FHR at [87] and [90], applying Keech v. Sandford (1726) Sel Cas Ch 61 and Phipps (above).[175]Mr Brindle asserts that there is no proprietary claim under (2) since REBTL was not beneficially entitled to the shares and only the beneficiaries have the right to make such a claim, although he asserts that such a claim would fail in any event. However, in the circumstances and on the facts I have found, Mr Ingram Hill’s acquisition of the shares fell into Category 2 as well as Category 1. In view of my findings above, however, I do not need to elaborate on this.[176]The effect of REBTL’s proprietary interest in the Roadchef shares is that REBTL is entitled to trace into the proceeds of sale of the shares and into the substituted assets acquired with them provided that he was not a bona fide purchaser without notice. I have held that he was not.[177]Lord Millett explained in Foskett v. McKeown [2001] 1 AC 102 at 127 that, “Tracing is…neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property.”[178]REBTL can also trace into assets representing the shares which are still held by the trustees of EBT2 unless they constituted a bona fide purchaser without notice. Again, they are not. Throughout the series of transactions comprising the grant and exercise of the options the directors of RMTL were aware of the transfer of shares from the trustee of EBT1; they had apparently been involved in the giving or receiving of advice in relation to it. It would seem that the only reason that Mr Ingram Hill did not remain as the sole director of RMTL was because of the advice given by Mr Hurdley on 17 March 1994.[179]It is important to note that REBTL can only trace in respect of property which belonged to REBTL in equity where traceable proceeds of that property remain in the hands of the defendants.[180]It is conceded that if the transfer of shares is set aside, the trustees of EBT2 must repay traceable products of the disputed shares. However it is said that only a proportion of its remaining assets derive from the disputed shares as the assets it retains are proceeds of the sale of shares less repayment of loans made by UTB and Roadchef. Some of the proceeds relate to proceeds of sale of shares other than the Appropriated Shares.[181]I have found that the transfer of the shares was void and that it was effected in breach of fiduciary duty. On the basis that Mr Ingram Hill and the trustees of EBT2 are required to account for what has become of the trust property which they received, and on the basis that the claim is for the proceeds of sale of the shares rather than the shares themselves (Nikko being a bona fide purchaser for value without notice), Mr Brindle argues that it is necessary to have regard not only to Mr Ingram Hill’s cost of purchasing the shares (it is accepted that the cost of purchasing them (£2,828,650) is deductible: see Ultraframe (UK) Ltd v. Fielding [2005] EWCA 1628 (Ch) at [1513]) but also to the expenses incurred by Mr Ingram Hill as a necessary consequence of holding and realising them. Quantum: constructive trust[182]The expenses claimed to be deductible by Mr Ingram Hill comprise in particular(1) the tax payments of more than £20,211,969 which Mr Ingram Hill had to make on the sale of his shares to Nikko at the time of the takeover and(2) an investment of £12,500,000 by way of share exchange with shares in MSA he was required to make as a condition of the takeover. The MSA shares are now worthless.[183]Mr Brindle submitted that, as there is no evidence whether any of this expenditure related to the disputed shares or to other shares which he held, a pro rata approach must be taken. Thus on Mr Brindle’s calculation the balance of the net proceeds of sale for which Mr Ingram Hill is required to account (on the above basis) is only a small fraction of the sum claimed by REBTL. The law on expenditure and mixing funds[184]Expenditure incurred in realising the disputed shares must be taken into account. That is clear from the decision of Wilberforce J (affirmed in the Court of Appeal and the House of Lords) in Phipps v. Boardman that “account must naturally be taken of the expenditure which was necessary to enable the profit to be realised.” This passage was explained in University of Nottingham v. Fishel and Another [2000] ICR 1462 17 1498-99, in which Elias J said, “In my view, the profits in this case are simply the sums received by Dr. Fishel in respect of the patients treated by the other embryologists employed by the university, less the payments made to those embryologists by Dr. Fishel himself. That is the measure of his profit. The university contended that no allowance should be made for the payments he made to the other embryologists save to the extent that it represents overtime payments which would have been earned had they been in England. I do not accept that. To refuse such an allowance would be unjust and would mean that a relevant expense was simply being ignored. In addition, I consider that Dr. Fishel should in principle be entitled to deduct any tax he has paid in respect of these profits, although this may need some qualification if he would be entitled to recover any such tax in consequence of this ruling.” In Ultraframe (UK) Ltd v. Fielding [2005] EWHC 1638 (Ch) at first instance Lewison J said at [1513], “The taking of an account is the means by which a beneficiary requires a trustee to justify his stewardship of trust property. The trustee must show what he has done with that property. If the beneficiary is dissatisfied with the way that a trustee has dealt with trust assets, he may surcharge or falsify the account. He surcharges the account when he alleges that the trustee has not obtained for the benefit of the trust all that he might have done, if he had exercised due care and diligence. If the allegation is proved, then the account is taken as if the trustee had received, for the benefit of the trust, what he would have received if he had exercised due care and diligence. The beneficiary falsifies the account when he alleges that the trustee has applied trust property in a way that he should not have done (e.g. by making an unauthorised investment). If the allegation is proved, then the account will be taken as if the expenditure had not been made; and as if the unauthorised investment had not formed part of the assets of the trust. Of course, if the unauthorised investment has appreciated in value, the beneficiary may choose not to falsify the account: in which case the asset will remain a trust asset and the expenditure on it will be allowed in taking the account.” And again in Cobbetts LLP, Lee Crowder (a firm) v. Hodge [2009] EWHC 786 (Ch) Floyd J said at [113], “It is well settled that a fiduciary may, even when held liable to account for a breach of duty, be given an allowance for expenditure incurred…” Recently, in TCP Europe Ltd v. Perry [2012] 1940 (QB), HHJ Seymour QC said (at [120]), “I have already mentioned the guidance of Elias J in University of Nottingham v. Fishel, supra, as to how, in a case such as the present, an account of profits is to be approached. Essentially the object of the exercise is to deprive the wrongdoers of the benefit of their wrong. Thus the focus is on the net profit made by the wrongdoers, not the gross profit, and to permit as proper deductions the costs and liabilities (such as in respect of tax) incurred in order to pursue the activity in which the liability arose.”[185]Mr Brindle also referred me to the principles enshrined in Ultraframe that the taking of an account must not be allowed to operate as the unjust enrichment of the claimant and that the profits for which an account is ordered must bear a reasonable relationship to the breach of duty proved.[186]Accordingly in principle it is the net profit for which the fiduciary must account so that relevant deductions must be made to ensure that the award to the beneficiary is not unjust. This would include all Mr Ingram Hill’s expenditure if, but only if, the expenditure was both “necessary to enable the profit to be realised”, and it also related to the shares in question rather than to the non-option shares.[187]In my view the tax must relate to the shares transferred so that Mr Brindle is right in saying that the tax liability should be apportioned pro rata among the option and non-option shares, allowing a deduction for the relevant pro rata amount. I do not accept Mr Jones’s submission that as a liability for tax is a personal liability no account should be taken of it. This seems to me to run counter to the principles enunciated in Fishel and TCP.[188]In relation to the MSA shares Mr Jones relies on the principle expounded by Sir George Jessel MR in Re Hallett’s Estate (1880) 13 Ch D 696, that if payment comes out of a mixed fund it should be deemed that the wrongdoer used his own share of the fund first, rather than the share owned by the beneficiaries. In Foskett v. McKeown [2001] 1 AC 102 Lord Millett said at 131, “Two observations are necessary at this point. First, there is a mixed substitution (with the results already described) whenever the claimant's property has contributed in part only towards the acquisition of the new asset. It is not necessary for the claimant to show in addition that his property has contributed to any increase in the value of the new asset. This is because, as I have already pointed out, this branch of the law is concerned with vindicating rights of property and not with reversing unjust enrichment. Secondly, the beneficiary's right to claim a lien is available only against a wrongdoer and those deriving title under him otherwise than for value. It is not available against competing contributors who are innocent of any wrongdoing. The tracing rules are not the result of any presumption or principle peculiar to equity. They correspond to the common law rules for following into physical mixtures (though the consequences may not be identical). Common to both is the principle that the interests of the wrongdoer who was responsible for the mixing and those who derive title under him otherwise than for value are subordinated to those of innocent contributors. As against the wrongdoer and his successors, the beneficiary is entitled to locate his contribution in any part of the mixture and to subordinate their claims to share in the mixture until his own contribution has been satisfied.” It is said in Lewin on Trusts 18th (2008) Edition at 41-93, “If the trustee adds a number of shares in a company owned by the trust to his own holding, then the beneficiary is entitled to the same number of shares back. If the trustee has disposed of part of the overall holding and the trust shares cannot be identified by number or otherwise, he will be treated as having disposed of his own shares before the trust shares so as to allow the beneficiary, if he wishes, to claim back the trust shares out of the residue of the holding.”[189]I agree with Mr Brindle that(i) there was no evidence that there was any intention at the time to attribute any shares to the MSA share swap and that(ii) all the Roadchef shares were valued at the same price on the sale so that it is impossible to establish the origin of the shares sold.[190]There is a dispute whether (iii) the Completion Statement shows that the Roadchef shares used to acquire MSA shares under the swap were deducted from the total number of Mr Ingram Hill’s shareholding and not from the part represented by the shares deriving from EBT1.[191]Mr Jones says that the Statement shows that the shares used for the MSA share exchange were Mr Ingram Hill’s non-option shares. On the face of the Completion Statement the EBT1 shares and Mr Ingram Hill’s own shares have been aggregated and the share swap comes out of the total pool. Payment was made to Mr Ingram Hill in two amounts to two separate accounts: £4.4m to an account in his sole name at Hoare’s Bank and £56.28m to an account in the joint names of Mr Ingram Hill and his wife at Barclays Bank. Mr Brindle accepts that mathematically the amount paid into the Hoare’s account is consistent with the share exchange having been deducted only from his own shares. However I agree with Mr Brindle that the division of the proceeds of sale has no logical connection with the origin of the shares being exchanged. It is in my judgment a leap too far to elevate, as Mr Jones seeks to do, the split of the share proceeds to an election by Mr Ingram Hill to treat the assets exchanged as relating only to the non-EBT1 shares or, put another way, a conscious treatment of his obligation to reinvest in MSA shares as applying only to the shares he had acquired other than through EBT1.[192]Mr Jones’s other independent allegation is however based on Re Hallett’s Estate, namelythat the first shares to be drawn from the collective mix were Mr Ingram Hill’s and thus that the share swap with MSA shares ((2) above) must be deemed to have been effected with the shares he did not acquire through EBT1.[193]The case is different from Re Hallett’s Estate as in that case there was no issue, as there is here, as to whether the wrongdoer’s personal assets could have been sold independently of the trust assets. If, as I find, there is no evidence of any intention to appropriate any particular shares to the swap, credit would have to be given for all elements of the expenditure incurred by Mr Ingram Hill in order to realise a profit on the shares. In this case Mr Ingram Hill’s evidence is that the sale would not have gone through at all without the payment.[194]There are also various financial commitments which were required as a condition of the takeover. First, some £6m of the proceeds of sale were deposited in an HSBC investment portfolio as collateral for an oil guarantee facility that Mr Ingram Hill supported following the takeover. In short, oil companies would only supply Roadchef with fuel on credit backed by cash guarantees, without which no fuel would be supplied. Mr Brindle says that the evidence shows that without these guarantees the deal with Nikko would have foundered. Then there were sums in an escrow account derived from the loan notes of £4.3m which Mr Ingram Hill subscribed to as part of “Project Beatle”, the acquisition as a term of the take-over of Blue Boar and Take-a-Break.[195]Mr Ingram Hill says of these payments, “…the requirements of the transaction as to…senior management contributing to the acquisition of Blue Boar and Take a Break remained. If I had not held the options to purchase shares that I did, so that I could exercise the options and sell the shares to Nikko, then I would not have been able to make the commitments required of me. Nikko left me in no doubt that without these commitments they would not have proceeded with the purchase at all, let alone at £1.31 per share…”[196]He refers in support to an agreement as to the share exchange dated 18 May 1998 and a facsimile from Nikko’s chief negotiator of 26 June 1998 setting out the obligations (referring to (3) and (4) above) to be undertaken by Mr Ingram Hill as a condition of Nikko’s purchase of Roadchef. He continues, “Had the Transfer effected on 6 April 1995 not taken place then the transfer shares would have remained in the ESOP. This would have raised two issues. Firstly it would have been harder for me to demonstrate the commitment which Nikko required of me to do the deal. Secondly, having significantly more shares of the Company in an ESOP would have raised a major issue for Nikko as to what to do about the shares when the sale went through and how to ensure that employees receiving large cash sums did not simply leave. I have no doubt that Nikko would have looked to the ESOP as it looked to each of the senior management team –i.e. significant shareholders- to reinvest. I also have no doubt that under no circumstances would Nikko have gone ahead with the sale as it did on the basis that following sale, the ESOP could have distributed all of its proceeds of its shares to employees. Nikko would have been concerned at the prospect of employees leaving if they had received substantial sums from the ESOP. Nikko might have agreed to swap Roadchef shares within the ESOP for MSAA shares as it did with the management, although it is questionable whether REBTL would have agreed to this and in any event, as I explain above, these later turned out to be worthless.”[197]It seems to me that all the sums Mr Ingram Hill expended were “necessary to enable the profit to be realised” in relation to the shares emanating from EBT1. Further, on the facts they related both to the EBT1 shares and to Mr Ingram Hill’s other shares.[198]In principle, therefore, Mr Ingram Hill is entitled to deduct a proportion of his expenditure on the basis that it was necessary to unlock the profit obtained from Nikko. However, unlike the value of the MSA shares, these sums are still in being. The further question thus arises whether these sums are available to REBTL under the proprietary claim.[199]Mr Brindle says that although it is undisputed that the property identified by REBTL (into which REBTL says it is entitled to trace) was purchased with the proceeds of sale of Roadchef shares it could not all have been purchased with the proceeds of sale of the shares acquired from EBT1. Mr Jones again relies on Re Hallett’s Estate and the statement in Foskett v. McKeown that, “as against the wrongdoer and his successors, the beneficiary is entitled to locate his contribution in any part of the mixture and to subordinate their claims to share in the mixture until his own contribution has been satisfied.” Any other approach, he submits, creates a false limitation on the tracing process.[200]However it seems to me that the same principle must apply: deposit of these sums was necessary to unlock profit from the proceeds of sale of the shares as a whole.[201]Mr Ingram Hill may also be entitled to a separate allowance for his skill and effort since he alleges that the takeover would not have been possible (certainly at that price) but for his input. The power to make an allowance is unlikely to be used where the fiduciary has acted dishonestly or in bad faith. However, an allowance is not ruled out merely because the fiduciary can be criticised. The question is whether it is inequitable for the account to become the vehicle for the unjust enrichment of the claimant. As a matter of first principles it is therefore crucial to ascertain what it was that was acquired in consequence of the breach of duty.[202]I do not however have sufficient evidence to estimate what, if any, deduction Mr Ingram Hill can make. I appreciate that the onus is on him convince the court that an account of the entirety of the proceeds of the shares he acquired from EBT1 is inappropriate in the circumstances. Nevertheless, the amounts are a matter to be left to the taking of any account. Account of profits obtained in breach of fiduciary duty[203]There is a separate question of the account of profits for which Mr Ingram Hill is liable for breach of fiduciary duty.[204]In this regard Mr Ingram Hill claims(a) an allowance for the work he did which increased the value of the shares in Roadchef and brought about the eventual takeover by Nikko,(b) an allowance for the risk he took (compared with Mrs Cartwright and Mr Lindley) in agreeing to make substantial investments on the takeover and(c) the loss of the £12.5m which he suffered on the MSA share exchange.[205]Again, as to (c), this is part and parcel of the price paid for the shares so that when estimating profit a pro rata deduction must be made. As to (b), the court is in a position to measure the outcome of the risk. In the event, there was none and any allowance should be included as part of (a). Again, I am not in a position to estimate the precise amount to which Mr Ingram Hill may be entitled and this should be left to the taking of the account. Liability of the trustees of EBT2[206]Then there is the question of the proceeds of the EBT1 shares received by EBT2 and thus how much the trustees of EBT2 hold as constructive trustee for REBTL on account of sums received as consideration for exercising his option.[207]REBTL again relies on the principle in Re Hallett’s Estate on the basis that as EBT2 was controlled by Mr Ingram Hill it cannot be said that the trustees were innocent parties. Mr Jones says that there should be an assumption that any sums paid to UTB were paid from the proceeds of shares other than the EBT1 shares.[208]It is true that the shares acquired from EBT1 were not charged, UTB relying only on the guarantee from Roadchef. It is also true that there appears to be no specific facility letter documenting the transfer. However, liability to UTB was a necessary condition of the transfer from EBT1 to EBT2. I therefore agree that it was necessary for the trustees of EBT2 to discharge the loan to UTB rather than rely on the secondary liability under Roadchef’s guarantee.[209]However the defendants seek to adopt a pro rata approach to the rest of the moneys held by the second defendants, saying that only 50.5% of EBT2’s receipts related to the shares emanating from EBT1 and on this basis, after loan repayments, the amount now held by EBT2 derived from the proceeds of the shares coming from EBT1 is considerably less than the £2.8m alleged by REBTL.[210]However in this instance I agree with Mr Jones that, having given credit for the loan repayment, REBTL is entitled to claim that the proceeds of the shares acquired from EBT1 are in “any part of the mixture” as per Foskett v. McKeown, namely the amount left in the hands of the trustees of EBT2. Conclusion[211]I therefore find that the defendants are liable to REBTL on the basis that the transfer of shares according to the resolution of 6 February 1995 was void and REBTL can trace the proceeds of those shares into the hands of Mr Ingram Hill and the current trustees of EBT2. I will leave the question of interest over for further argument.

Cited in 1 later judgment