England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MANCHESTER DISTRICT REGISTRY
(LORD JUSTICE ROCH, LORD JUSTICE WARD AND
LORD JUSTICE CHADWICK)

		Royal Courts of Justice Strand London, WC2
		13 July 2004

1. LORD JUSTICE CHADWICK: In February 2000 in this court, Roch and Ward LJJ and myself heard appeals in proceedings brought by Arrow Nominees Inc and Lorraine Blackledge, as she then was, against Graham Blackledge, Margaret Blackledge and GR and MM Blackledge Plc in relation to the affairs of the company Bodycare (Health and Beauty) Limited.
2. The shares in Bodycare (Health and Beauty) Limited at that time were held as to 52 per cent by GR and MM Blackledge Plc, as to 24 per cent by Lorraine Blackledge and as to the remaining 24 per cent by Arrow Nominees Inc, a British Virgin Islands corporation, who held them as trustee of a settlement of which the principal beneficiary was Mr Nigel Tobias. Mr Tobias and Miss Lorraine Blackledge have since married, so I will refer to her hereafter as Mrs Tobias.
3. The proceedings were, in substance, a petition under Section 459 of the Companies Act 1985 and a cross-petition; each side alleging unfair conduct and seeking an order for the transfer on the sale of the other side's shares.
4. On 11th February 2000, this court indicated that it would allow the Blackledge respondents' appeal against the refusal of the judge to strike out the petition of Arrow Nominees Inc and Mrs Tobias. The reasons for that decision appear in the judgments which we handed down on 22nd June 2000. Put very shortly, the facts found by the judge led this court to take the view that the conduct of Mr Tobias in relation to the trial of the proceedings was such as to put at substantial risk a fair outcome of that trial; and that in those circumstances the right course was to bring the proceedings to an end.
5. Following that decision, the court had to decide what to do about the costs of the proceedings. It made an order for the interim payment of costs on 27th July 2000. Under that order, Arrow Nominees Inc, Mrs Tobias and Mr Tobias, in their own capacities and as trustees of the settlement affecting the 240 shares held by Arrow Nominees, were to pay on account of costs the sum of £750,000 to the Blackledge respondents. That order went on to direct in these terms:

"The order for payment on account of costs is not to be enforced, save by way of charging order over the 240 shares of £1 each in the company registered in the name of Arrow Nominees Inc and over the 240 shares of £1 each in the company registered in the name of Lorraine Blackledge, without the prior permission of Lord Justice Chadwick and any application to enforce in any other way (including bankruptcy proceedings) shall only be made with the permission of Lord Justice Chadwick."

6. The thinking behind that direction was this. It was common ground in the proceedings before us that the shares in the Bodycare Company were likely to have a considerable value; a value which would be more than sufficient to meet the interim order for costs of £750,000. Further, it was plain that the ultimate solution to the dispute had to be a sale by the minority shareholders, Arrow Nominees and Mrs Tobias, to the majority, as there was unlikely to be any other real purchaser for the minority interest.
7. The petitioners were restrained from taking any steps to dispose of or deal in those shares registered in their name. It went without saying -- although it was, in fact, said -- that those in control of the company would conduct its affairs in a way which was not oppressive to the minority.
8. What has happened since that date is that Mrs Tobias has been made bankrupt on the petition of her former solicitors, Messrs Linder Myers, and her trustee in bankruptcy, a partner in KPMG, has sold the 240 shares in Bodycare which were registered in her name to the Blackledge Plc at a price of £155,000. That is a figure which is far below what this court would have expected those shares to be worth at the time when it made its order in 2000. The sale transaction has been the subject of a report by the trustee of bankruptcy -- seeking directions from the bankruptcy court -- which was dated 17th September 2003. Although we have not been shown a copy of any order made by the Manchester County Court sitting in bankruptcy, it seems plain from that report that the trustee was seeking directions and must have obtained them.
9. That leaves the 240 shares which were registered in the name of Arrow Nominees Inc. Those shares were the subject of a charging order made on 12th December 2000. But the charging order charges the beneficial interest of Arrow Nominees Inc in these shares and, as I have indicated, Arrow Nominees Inc held those shares as a trustee. No doubt recognising that problem, the Blackledge company and Mr Blackledge sought and obtained a further final charging order on 7th May 2004 on which they now seek to rely. The shares remain registered in the name of Arrow Nominees Inc, but there has been a further appointment of a trustee of the settlement upon which those shares are held, and Mr Tobias and his wife are now the trustees of that settlement.
10. It was in those circumstances that on 19th May 2004, Eversheds, as solicitors for the Blackledge parties, wrote to this court to enquire whether permission was needed for an application by the chargee for an order for sale; and if so, whether that application would be granted. The letter sets out the history substantially as I have recited it.
11. The response was a letter from the court on 26th May 2004, recording my directions:

"If permission to enforce the charging order of 7th May 2004 by sale is required under the terms of this order of 27th July 2000 (which I doubt) that permission is granted upon terms (1), that notice of this direction is given to Mr Tobias and Miss Blackledge within 7 days, and (2) no order for sale is to be made until after 14 days from the date when such notice is given. Liberty to Mr Tobias and Miss Blackledge to vary this direction."

At that date, I did not know of the marriage between Mr Tobias and Miss Lorraine Blackledge. So no discourtesy was intended by the reference to her in her maiden name.

12. A copy of that letter was sent to Mr and Mrs Tobias. They have taken the opportunity given to them in that letter to apply to this court to vary the direction which I then gave. Mr Tobias, who has addressed us this morning, has made it clear that he accepts in principle that there is no alternative to an order for sale of the 240 shares registered in the name of Arrow Nominees Inc if in due course an application for sale is made under the charging order. His concern -- and it is an understandable concern -- is as to the price at which those shares are to be sold. That is a concern born, no doubt, out of the price which was accepted by his wife's trustee in bankruptcy on the sale of her shares.
13. However, the very short point for this court -- and the only point for this court under the order of 27th July 2000 and my direction of 26th May 2004 -- is whether permission to apply for an order for sale is required from this court; and if so, whether it should be given.
14. In my view, there is no doubt that the direction in the order of 27th July 2000 did not require the person who had obtained a charging order to obtain further permission from this court to enforce the charging order by sale in the ordinary way. There would be little point in obtaining a charging order if the order could not be enforced by way of an application for sale. The purpose of the direction of 27th July 2000 was to ensure that proceedings to enforce the interim costs order other than by way of realisation of the shares held by those against whom the order was made should not take place without the opportunity of this court to consider the matter further. In particular, this court was concerned that there should not be immediate proceedings by the persons in favour of whom the costs order had been made to make Mr or Mrs Tobias bankrupt. In fact, as I have indicated, a bankruptcy petition came not from that source but, as is not unusual in this type of case, from a former solicitor whose fees were unpaid.
15. I would hold, therefore, that permission was not required before an application for an order for sale could be made. If it were required, it is common ground, I think, that there would be no basis upon which to refuse it. That, of course, does not pre-empt whatever decision a court may make on an application for an order for sale. It simply enables the Blackledge respondents to apply to the appropriate court -- in this case, the court that made the charging order on 7th May 2004, that is to say the Manchester County Court -- for an order for sale. See CPR73.10.
16. It is important to have in mind that on an application for sale, the applicant will be required to file written evidence including the information required by the relevant practice direction. The practice direction requires, at paragraph 4.3 noted at 73 PD4 in Civil Procedure, volume 1, that there be given an estimate of the price which would be obtained on the sale of the property charged. It will also be necessary, of course, for that court to consider the manner of sale, who should be given conduct of the sale, and who should be entitled to bid as a purchaser.
17. Those are all matters which will have to be considered by the Manchester County Court, in the exercise of its jurisdiction under CPR73, when deciding whether or not to make an order for sale and on what terms. All the matters which Mr Tobias wishes to canvass on the present application are matters which will be open to him and before the Manchester County Court. There will, of course, be the usual avenue for appeal against any decision which the Manchester County Court may take.
18. In all the circumstances of this case, including the obviously sensible desire of the respondents to acquire for themselves the shares of which they are now chargee, it would seem obvious that some form of compromise or settlement should be reached so as to bring this unhappy litigation to an end. But if that is not possible, then the machinery provided by the rules will have to grind on, at no doubt ever-increasing cost. The only question for us is whether permission to make the application for sale was required under our order of 27th July 2000. That question must be answered in the negative.
19. LORD JUSTICE WARD: Since sale is an inevitable consequence of a charging order, I agree with my Lord that the respondents need no permission from us to enable them to proceed with their sale.
20. I find it difficult to conceal my unease arising from the inevitability that Mr and Mrs Tobias will suffer a loss in the value of their shares far in excess of anything I would have envisaged when giving judgment four years ago. Whether mediation will bring full satisfaction I rather doubt, but as a satisfactory sale may present difficulties for the respondent selling as mortgagees, mediation may not be a bad idea. I will encourage it in order to bring this dreadfully unhappy litigation to a speedy conclusion.
21. No permission is needed and you take your course.