England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
(His Honour Judge Behrens)

		Royal Courts of Justice Strand London WC2 Wednesday, 13th February 2002

1. LORD JUSTICE CHADWICK: This is an application for permission to appeal from an order made on 25th October 2001 by His Honour Judge Behrens, sitting as a judge of the High Court at Leeds, on a petition brought by the applicant, Mr Keith Fellows, for relief under section 459 of the Companies Act 1985. The section is in these terms:

"A member of a company may apply to the court by petition for an order under this Part on the ground that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least himself) or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial."

2. The principles upon which the court exercises its jurisdiction under that section have been considered by the House of Lords in the recent appeal in O'Neill v Phillips [1999] 1 WLR 1092 and, subsequently, in this Court in Arrow Nominees Inc v Blackledge [2000] 2 BCLC 167. Those principles are not, I think, in doubt. They are set out by the judge at some length in what, if I may say so, is a full and detailed judgment. Those principles are not the subject of any challenge in the appellant's notice in support of this application.
3. The applicant is the holder of two shares in Specialist Anodising Company Limited. He is - or was - a director of that company. The other four issued shares in that company are registered in the name of Lendlock Projects Limited. Lendlock Projects was the purchaser of those four shares from Mr Michael Belcher and Mr Michael Duffell under an agreement made in or about August 1994. Notwithstanding that agreement, Mr Duffell and Mr Belcher continued as directors of the company, with Mr Fellows, until April 2001 or thereabouts, when they were replaced by persons nominated by Lendlock.
4. The applicant contended at the hearing that, notwithstanding the agreement for the purchase of the four shares from Mr Belcher and Mr Duffell, they remained the beneficial owners of the shares. They were joined as respondents to the petition on that basis. The applicant's contention was that the agreement was a sham. The judge rejected that contention. He held that Mr Belcher and Mr Duffell should not have been joined as respondents in the circumstances that the relief claimed on the petition was an order that Lendlock sell its shares to the petitioner. Nevertheless, the judge recognised that the conduct which was alleged to be unfairly prejudicial to the interests of the applicant as petitioner was, primarily at least, conduct on the part of Mr Belcher and Mr Duffell - rather than conduct on the part of Lendlock or Mr Richard Wigley, who was the individual who acted for Lendlock in relation to the affairs of the company. The judge went on to hold that there was nothing in the conduct of the company's affairs by Mr Belcher and Mr Duffell which was, in the event, unfairly prejudicial to the interests of the applicant.
5. Put very broadly, there were a number of proposals made by Mr Belcher and Mr Duffell in relation to the affairs of the company in or about 1998 which were plainly capable of being prejudicial to Mr Fellows' interests. But those proposals were never carried through to fruition and, by the time that Mr Duffell and Mr Belcher had ceased to be directors, Mr Wigley, on behalf of Lendlock, was plainly conscious that it would be - or might be - unfairly prejudicial to proceed with those proposals. So in the event, the proposals never came to fruition. And, again put shortly, the judge, looking at the matter at the time of the hearing (as he was bound to), reached the conclusion that, whatever might have been proposed in the past, the affairs were not then being conducted in a manner which was unfairly prejudicial to Mr Fellows; that there was not then any proposed act which would be so prejudicial; and that the proposals which had originated in 1998 had never gone beyond proposals and so had not themselves amounted to actual unfair conduct.
6. The proposed grounds of appeal, set out under section 7 of the appellant's notice, are contained in eight paragraphs. Of those eight paragraphs, six are complaints that the judge wrongly failed to take any or any adequate account of the evidence; one is a complaint that the judge wrongly failed to take any adequate account of the onus of proof in respect of the company's potential liability to the Inland Revenue; and the final and eighth subparagraph alleges a serious procedural irregularity in relation to the delivery of the judge's written judgment.
7. Those paragraphs are elaborated in a lengthy written skeleton argument prepared for the purposes of this application for permission to appeal. The document extends over 65 pages of typescript. It is, perhaps, pertinent and necessary to draw attention to the requirement in paragraph 5.10 of the practice direction issued by way of supplement to CPR Part 52. That gives directions as to the content of skeleton arguments. It is in these terms:

"Skeleton arguments for the appeal court should contain a numbered list of points stated in no more than a few sentences which should both define and confine the areas of controversy."

8. That practice direction is referred to in note 52.4.5 of Volume 1 Civil Procedure; where the editors observe that the practice of drafting diffuse skeleton arguments, which some advocates favoured under the former regime, should be abandoned. As an aid to the case management task which faces a court in deciding whether or not to give permission to appeal, a skeleton argument of this length and diffusion is of little assistance. The first 20 pages or thereabouts is a recitation, under 78 numbered paragraphs, of uncontested facts. Those facts can be found in the judgment itself. It was quite unnecessary to rehearse them in the skeleton argument.
9. In oral submissions Mr Sterling grouped the grounds of his application under four headings. The first, which encompasses paragraphs 2, 3 and 4 of the grounds of appeal, relates to the judge's treatment of a proposal by Mr Duffell and Mr Belcher (with, it is said, the encouragement and support of Mr Wigley and Lendlock) to write off certain loans from the company, Specialist Anodising, to three other companies - Atlagraph, Plusimage and Leaseteam. Those loans were to be written off in the context of a settlement to be reached between the company and the Inland Revenue, following a tax investigation.
10. The judge identified the loans in paragraph 3.10 of his judgment. They are substantial. The debt from Atlagraph was at least £262,650; the debt from Plusimage, £414,500; and the debt from Leaseteam, some £23,900. The judge took the view that, in relation to the Atlagraph loan, Mr Fellows, the applicant, was willing to accede to an arrangement under which the indebtedness of Atlagraph to the company was written off as part of the overall settlement with the Revenue. But he accepted that Mr Fellows was not prepared to allow similar treatment in respect of the debts due from Plusimage and Leaseteam - two companies which, it was said, were under the control of Mr Belcher or Mr Duffell, or in which one or other of them was interested.
11. The judge summarised the position at paragraph 6.2.3 (pp.36-37) of his judgment. He said this:

"Mr Duffell and Mr Belcher clearly had an interest in establishing a write off in that it reduced their liability under the settlement to the Inland Revenue. To insist on a write off was clearly capable of being prejudicial to Mr Fellows. Whether it was prejudicial to him would depend on the extent to which the write off exceeded the contribution that SACO [the company] ought to have made to the settlement."

12. He then indicated that he found it impossible to say what a fair contribution to the settlement would have been. But he recognised that the approach of Mr Duffell and Mr Belcher might well yield a result which was not fair. He went on:

"However Mr Wigley, Mr Duffell and Mr Belcher did not insist on a write off. Rather Mr Duffell accepted that a different method would be adopted and both Mr Belcher and Mr Wigley wanted a meeting to discuss it. As noted above two of the loans were not in fact written off [the Plusimage loan and the Leaseteam loan]. They are still outstanding and capable of enforcement. As Mr Jory pointed out the treatment in the accounts does not preclude enforcement of the Atlagraph loans.

To my mind what actually happened was not prejudicial to Mr Fellows. Mr Jory's final submissions contained a reference to Re Astec plc ([1998] 2 BCLC 556. In that case it was alleged that directors appointed by a shareholder have refused to pay dividends. The shareholder resiled and the judge held that undermined the case under that heading.

In this case neither Mr Duffell nor Mr Belcher insisted on the loans being written off and thus Mr Fellows' case on the point is similarly undermined."

13. In that passage the judge directed himself, implicitly if not explicitly, that the task of the court, on a petition under section 459 of the Companies Act 1985, is to look at the matter at the date of the hearing. If nothing in the past has actually caused prejudice and there is no current proposal which will cause prejudice, then the court is entitled to come to the conclusion that the requirement for relief under section 459 is not satisfied. Put simply, the position as at the date of trial was that the company's affairs had not been conducted in the past in a manner which was unfairly prejudicial because the proposals had not been carried through. They were not currently being so conducted and there was no current intention to give effect to the proposals in relation to a write-off.
14. In those circumstances, the complaints that are made in paragraphs 2, 3, and 4 of the grounds of proposed appeal do not take the matter further. It may well be that the judge did not appreciate that the proposals were as serious, in relation to Mr Fellows' interests, as Mr Fellows would have wished. But whether seriously prejudicial or not, the proposals were not carried through. The judge found that there was no current intention to give effect to the proposals. No unfair prejudice was, in fact, caused or threatened.
15. The second of the four heads is found in paragraph 5 of the grounds of appeal - namely, that the judge failed to take any or any adequate account of evidence, particularly documentary evidence, showing that the share sale agreement of August 1994 was a sham. The judge set out in his judgment the points which Mr Sterling, on behalf of Mr Fellows, had put before him in support of the submission that the documents showed that the 1994 agreement was a sham, in the sense that it purported to evidence a bargain which the parties had not in fact made and which they did not intend should be carried through. But he heard evidence from Mr Belcher, Mr Duffell and Mr Wigley; and he found Mr Wigley (although not the others) to be an impressive witness. He said so in the last paragraph of section 5 (p.26) of his judgment. So in relation to the issue of sham the judge had the benefit of seeing and hearing evidence from the individuals (which did not, of course, include Mr Fellows) who were said to be party to the alleged sham; and, having heard that evidence, he rejected the allegation of sham.
16. In those circumstances, the proposed ground of appeal invites this court to substitute its own view, on a consideration of the documents, for the view which the judge formed after considering both the documents and the evidence of the witnesses who appeared before him. That is a task which this court is ill equipped to perform. In my view there is no realistic prospect that the court would be persuaded to substitute its own view on that point for the view of the judge; depending, as it does, on his evaluation of credibility.
17. The third head is to be found in paragraphs 6 and 7 of the grounds of appeal - namely, that the judge failed to give proper weight to the conduct of Lendlock in seeking, through its subsidiary La Hougue, to levy management charges, and in supporting the conduct of Mr Belcher and Mr Duffell in relation to the Inland Revenue investigation and settlement and litigation against a company, HCL. Again, the judge took the view that that was not conduct which had, in fact, led to any prejudice to Mr Fellows. In particular, he held that he could rely on an assurance given by Mr Wigley (who, as I have said, he found an impressive witness) that management charges, if wrongly made, would be repaid. To make an order for the sale of the shares held by Lendlock, on the basis of some £33,000 of inappropriate management charges, would have been quite disproportionate.
18. The final point raised is that of procedural irregularity in relation to the judgment that the judge handed down on 25th October 2001. The brief history said to give rise to procedural irregularity may be summarised as follows. The oral hearing of the evidence, which extended over some seven days, was completed on or about 15th October. The judge invited the parties, through their counsel, to make their final submissions in writing to him. That they did; and it is plain that he had received those written submissions by 17th October. On 17th October the judge sent an e-mail message to counsel for those parties who were represented and to Mr Duffell, who was representing himself. The material paragraphs are these:

"Thank-you all for your very full final submissions which were very helpful.

As a result I have been able to prepare a draft judgment. The question is how to proceed.

Option 1 is for you all to make final submissions to me in ignorance of my provisional conclusions on 24th October and for me to amend my judgment as I see fit and then to deliver it on 25th October.

Option 2 is for me to disclose my draft judgment at this stage by e-mailing it to each of you. Submissions on 24th October could then be directed to those parts of the judgment that anyone felt were wrong, inaccurate or unfair. Depending on how long submissions took it might be possible to complete the case on 24th October."

19. There then followed an exchange of e-mails between counsel, as a result of which the judge was told that it was not possible to agree on any course other than that the case continue as originally planned - which, in effect, was an adoption of option 1. Final submissions were then made orally on the morning of 24th October 2001. Mr Sterling tells me that oral submissions were completed by about 1.30pm.
20. Following those oral submissions, which were made without knowledge of the contents of the draft judgment which the judge had prepared on or before 17th October, the judge completed his judgment and sent it to counsel by e-mail on the evening of 24th October. The e-mail message in the bundle provided is timed at 19.33. He wrote: "Herewith the draft judgment. A hard copy will be available tomorrow morning - printer and photocopier willing."
21. That indicates that the judgment was on screen at that stage and was transmitted electronically. It was printed and photocopied the following morning, when it was formally delivered.
22. It is said that that correspondence suggests that the judge had formed views on 17th October which were incorporated in the draft judgment which he had by then prepared and that those views were immutable; so that no account was taken of the oral submissions made to him on 24th October. It is necessary to have in mind that the draft judgment was prepared following what the judge described as very full and helpful final submissions in writing. In those circumstances, it is not surprising that such amendment of the judgment as the judge thought appropriate, in the light of oral submissions made on 24th October, may not have been extensive. The structure of the judgment, the recitation of the documents and the effect of the evidence were all matters which the judge was in a position to set out as a result of the written submissions to him. But the judge said, in the e-mail of 17th October, that he expected to amend his judgment as he thought fit in the light of final oral submissions; and there is no reason to think that he did not do so. He had the afternoon of 24th October for that purpose. Unless it is to be assumed that the judge's willingness to hear oral submissions on 24th October was a charade - in the sense that his mind had already been set, so that it could not be altered - then in my judgment it should be accepted that the judge did what he said he was going to do; that is to say, he listened to the oral submissions made to him and made such amendments as he thought appropriate in the light of those submissions. I can identify no procedural irregularity in that process.
23. The judge's second option - to disclose the draft judgment on 17th October so that submissions could be directed to that draft - was not the course adopted in this case and it is unnecessary to consider whether, if it had been, there could have been complaint.
24. In those circumstances, I am satisfied that this is an appeal which would have no real prospect of success and that accordingly permission to appeal must be refused. The application is dismissed.
Order: application for permission to appeal dismissed.