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, CHANCERY DIVISION
(MR JUSTICE BLACKBURNE)

		Royal Courts of Justice Strand, London, WC2A 2LL
		4th December 2007

Lord Justice Sedley:

1. The claimants, whose application has been made on this limb of the case today by Mr Patrick Green, are members of a family who, in partnership, held substantial and once prosperous segments of the UK franchisees for Burger King outlets. They were also shareholders in a company that conducted the same business.
2. The first two defendants to their claim are the franchisors and the       lessors      of       the claimants' trading premises for the UK and American Burger King Companies who, in 1996, forfeited the leases     for     arrears of rent and royalties. The sixth defendant, the Royal  Bank  of  Scotland, was the claimants' banker who, in 1997, obtained an Administration Order against the claimants to recover their banking debts. The third, fourth and fifth defendants were appointed administrators of the claimants' business when RBS obtained an Administration Order.
3. The claimants' company in late 1997 went into creditors' voluntary liquidation and reached a full compromise with Burger King. The partnership business, in early 1998, was sold by the administrators to Allied Leisure for £3.4 million, of which £2.1 million went to Burger King. The seventh defendant was the sole franchise supplier of Burger King materials. They were all sued by the claimants for conspiracy to recoup the first and second defendants and the sixth defendant by selling off the claimants' business at a huge undervalue. There were also claims, based on essentially the same facts, for negligence and breach of statutory and equitable duty in the administration of the business assets, resulting in the same or a similar loss. It is not necessary to go further into the detail of the litigation.
4. We are concerned today with two renewed applications for permission to appeal to this court. One of those applications relates to the refusal of Mr    Justice Davis, on grounds of both time and of merits, to     give    permission   to   seek judicial review of the refusal of the Legal Services Commission's  Funding Review Committee (the FRC) on 29 March 2006 to restore public funding to the claimants in order to enable them to pursue the claim, shorn -- I stress this -- of its allegations of conspiracy against the third, fourth, fifth and sixth defendants.
5. The claims against the first, second and seventh defendants had by then been struck out by Etherton J as unsustainable. That strike-out was upheld by this court on appeal, and the claims against these defendants accordingly no longer feature in the case in relation to the Legal Services Commission. The LSC, in brief, took the view that the then remaining claims would go the same way and so declined to extend funding.
6. The other application is an invitation to us to depart from the refusal of Lloyd LJ on sight of the papers to grant permission to appeal against Blackburne J's decision, given subsequently to the Legal Services Commission's refusal to restore public funding, striking out as unsustainable the remaining claims against the third to sixth defendants. Importantly, the claimants were not unrepresented upon that application to Blackburne J. They had the benefit of representation, both by experienced solicitors and by Mr Green, whose presentation of their case throughout has been thorough and, if I may say so, cogent. Unless it can be unseated, Blackburne J's decision confirms the view of the LSC that the remaining claims were doomed to failure. Unless, therefore, Mr Green can show us that there is an arguable case that Blackburne J was wrong to strike out the remaining claims, the application in relation to the LSC seems doomed. However, that application is to be made by Mr Kyrris himself and we will hear him when this judgment has been completed.
7. It is appropriate first, however, to set out a little more of the history of the case. There was before the court, at an earlier stage, a question as to whether the partnership's claims could be compromised, but, on 21 July 1997 Evans-Lombe J authorised the administrators to make such a compromise. The compromise was subsequently, in August 1997, entered into with Burger King, and included a term that the administrators would sell the twelve restaurant premises of the partnership.
8. The plan was to sell these premises together with eleven premises of an unrelated company, which I will call Genesis, another fast food company also in financial difficulties. A preliminary valuation had been obtained of the partnership's assets as being between £3.1 and £3.6 million. The two sets of premises were offered for sale in September and October 1997. Bidding finally came down to two bidders of whom only one, Allied Leisure, made a firm offer. It totalled something over £3.6 million.
9. At a partnership creditors' meeting on 18 December 1997, an offer, enhanced by some £200,000, was accepted from Allied Leisure by the administrators. Later, in 2001, the administrators applied for and secured release and authority to wind up the partnership. They were given such permission by Pumfrey J, subject to certain charges over the premises. It was in November 2002 that the present claim was issued against seven defendants, alleging conspiracy against each of them and breach of contract and duty against the first to sixth defendants.
10. Lloyd LJ's reasons for declining to grant permission to appeal against Blackburne J decision to strike out all remaining claims are set out in some detail. He took the view in short that, giving all proper weight to the principle that the strikeout power should only be used in a clear case, none of the six issues which he identified as being those upon which the claimants sought to continue their case was viable.
11. Although before the FRC the claim, as I have said, was reduced so as to omit the conspiracy allegations, Mr Green has sought to resurrect them before us today and to make out his case as arguable on conspiracy not simply as an adjunct to breach of duty but, as I understand him, as his principal allegation. The grounds on which he does so -- identified as the sixth by Lloyd LJ -- can be shortly disposed of. An element of the claim relates to the losses of the associated company in which the claimants were shareholders. Manifestly such a claim infringes the rule in Foss v Harbottle [1843] 2 Ha. 461 and in Johnson v Gore Wood & Co [2001] 2 WLR 72. Any such proceeding has to be in the name of the company.
12. Mr Green, in his written submission, contends that this is not clearly so where the harm is intentional. For my part I see no logical foundation for this distinction. The principle is not related to the nature or motive of the harm but to the standing of the claimant, except where those controlling the company abuse the privilege of incorporation. The company is a separate legal person with its own rights. I see no answer to the judge's finding under this head.
13. Nor do I see any answer -- though I have some sympathy with the claimant's position -- in relation to the second issue in the skeleton argument before this court, namely that the cause of action in conspiracy had not been assigned to them by the liquidator of the insolvent partnership. As Lloyd LJ seconds in his reasons for refusal, the allegation of conspiracy made by the claimant's solicitors to Burger King at the start of the controversy was not repeated to the administrators or to the bank; but it was the causes of action so spelt out which, in terms, the administrators assigned to the claimants. Mr Green realistically accepts this but he submits that the assignment should be read in context and as between assignor and assignee. So read, he submits, the official receiver's subsequent letter stating that it was all along intended to assign the cause of action in conspiracy acquires substance.
14. It may be that the non-assignment of the cause of action in conspiracy was more by accident than by design. But it does seem to me, however unfortunately, to be a legal fact. However, I do not propose to leave the matter there. I think, in fairness to Mr Kyrris, I should go on, as I will do, to look at the substance of the conspiracy allegations.
15. Of the remaining issues, one is whether Blackburne J was right to hold that the sixth defendant, the bank, owed the claimants no material duty of care. For my part I would be prepared to accept that the underlying question of principle may not be apt for summary determination. Plainly, banks owe their customers some duties of care and of honest dealing. But where I think Lloyd LJ was right to consider Blackburne J's decision unimpeachable is in his finding that on no view could the evidence proffered sustain such an allegation against the bank. Even after disclosure there was nothing to show that the bank had ever given the claimants the bad advice alleged in the claim.
16. The issues which remain are the substantial ones in point of detail. They are whether there was sufficient evidence that the administrators had sold at an undervalue, and whether -- assuming that it was now proved that they had -- the sale amounted to a breach of duty on their part. The judge dealt with the substance of this at paragraphs 83-86 of his judgment. They are quite long and I will quote only the first and last of them:

"83. The sale as an undervalue claim, namely the complaint that the administrators acted in breach of duty in selling the Partnerships premises at an undervalue, which Mr Green described in argument as the "principle issue" in relation to the role of the administrators and the "lynchpin" [I expect Mr Green spelt it right] of the case against them, suffers fatally from the lack of any real prospect of demonstrating that the price actually achieved on the sale, £3.612 million, was an undervalue.

"86. In short, on the material before the court, and making every allowance for the funding difficulties from which the claimants say that they have suffered, the administrators demonstrate that the claimants have no real prospect of establishing that the premises were sold at an undervalue. It follows that I shall strike out this claim as well."

17. In essence, as it seems to me, the judge drew a proper distinction between the higher figures which had been proposed for the business in the course of the attempt to dispose of it and the eventual figure which was obtained. Although the latter was disappointingly low and left the claimants no margin of recoupment -- indeed it ruined them -- there was no evidence that more was actually obtainable. No independent valuation has ever been adduced by the claimants in support of their case. We have been shown a solicitors' affidavit reciting a preliminary view obtained from an accountant, but it comes nowhere near supplying the want.
18. Mr Green's further submission that the third defendant had a conflict of interest as advisor to the Royal Bank of Scotland on its securities cannot now furnish or supplement a cause of action. At most, it would be part of the case if conspiracy were otherwise viable. Mr Green in his skeleton argument and his renewal statement and before us today has set out a series of arguments amounting, as he suggests, to an inferential case that the claimants' interest were sacrificed to the combined interests of the eventual purchaser Allied Leisure, and those of the Royal Bank of Scotland, by ensuring that the purchase price left RBS plenty of security for its continuing subventions. This, it needs to be said at once, is a case not of neglect at all but of conspiracy. Although it is developed over several pages, the argument, if Mr Green will forgive me for saying so, is long on assertion and short on proof. Let me take one example -- the one on which Mr Green himself lays the most emphasis. Indeed, in opening, Mr Green went so far as to submit that he was practically in a position to secure summary judgment on it. He suggests that the fourth defendant has given revealingly discrepant accounts of how the purchase price came to be divided between the amount allocated to the claimant's partnership and the amount allocated to Genesis within the same package.
19. The first explanation was: "It was left to Allied Leisure. The allocations seemed reasonable to the administrators". The second such explanation ran as follows in paragraphs 5 and 6 of the second witness statement of the fourth defendant, Mr Schofield:

"The third point made by Mr Kyrris relates to the breakdown of the offer by Allied Leisure, and the way it was allocated between the Genesis and Kyrris sites. Allied Leisure made one offer for the two businesses; they did not make separate offers at any stage. It followed that the allocation as between the businesses was an allocation in relation to a single offer. It made no difference to Allied Leisure how the offer was allocated, although of course it was important to the administrators, because the allocation affected the creditors of the two businesses ... I do not now have a copy of the Genesis valuation but it can be seen from ICS1 p628 that the advice which the administrators had received from Weatherall Green and Smith was that the valuation of Genesis was £2.95-3.5m whereas the valuation for Kyrris was £3.1-3.6m, although that excluded any value for the Meadowhall restaurant in Sheffield.

"We asked Allied Leisure to provide an allocation between the two businesses within their offer. They explained the basis on which they sought to do their allocation (ICS1 p619). However, they came back with an allocation which appeared to be unfairly balanced in favour of Kyrris and against Genesis, offering less for Genesis than the lower end of Weatherall range. We asked them to review it, and they came back with an apology that they had used the wrong data for the allocation (ICS1 p625) and with a new allocation which corrected the error. That allocation exceeded the lower end of the Weatherall range in both cases and seemed to the administrators (it was Mr Oldham who dealt with the sale) fair, for the reasons explained by Mr Oldham to the Creditors' Committee at the meeting on 18 December (ICS1 p627) and in particular given the Weatheralls valuations which were the objective material available to the administrators. In fact, even on the revised allocation, whilst the Genesis allocation only slightly exceeded the lower end of the valuation provided by Weatheralls, after taking into account Meadowhall it was in the middle of the Weatheralls range for Kyrris."

20. I have to say that I see nothing discrepant between the two accounts. The second is simply a more detailed description of how (as recounted in the first) it came about that Allied Leisure's allocation was accepted as reasonable.
21. Mr Green today has shown us the two successive schedules submitted by Allied Leisure. The first on 16 and the second on 17 December, immediately before the acceptance of the second offer. It demonstrates the change in the arithmetic which has been described; but it does not demonstrate or begin to demonstrate any bad faith or other conspiratorial aspect to the change. The change was allocated by the offerors to a mistake, and I am not able to see anything, certainly not in the alleged discrepant accounts, which suggests otherwise.
22. Even so, Mr Green founds upon the discrepancy between the initial offer of £4.2 million and the eventual price of £3.6 million. He suggests that, by itself, it is capable of implicating the administrators in wrongdoing by virtue of their failure to take the higher offer as soon as it was made. This had, as I have indicated, proceeded literally from day to day and I can see absolutely no basis for saying that the administrators were duty-bound to take the first offer with such alacrity that there was no time for the altered offer to be made. It was made within a day and I am afraid that it is one of those misfortunes -- from the Kyrris point of view -- that business life is beset with.
23. Mr Green has also sought to rely on the way in which the altered offer was computed, reducing the book-value assigned to particular premises only within the Kyrris group and suggesting that they were selected in order to protect the Royal Bank of Scotland's interests. If -- and this remains a big if -- there is standing to sue for conspiracy I simply do not see that this is capable of feeding the allegation. We have been shown the documentary evidence on which Mr Green relies. In the absence of independent valuation evidence for his essential case that the big players stitched up the Kyrris family, it is enough to say that none of these documents, singly or together, in my judgment begins to establish more than that those involved were actively considering throughout how best to take care of their own interests in the face of the Kyrris insolvency. That, I am afraid, is business, which can be bloody. It is not an unlawful conspiracy without proof of a good deal more.
24. Among the other things that have to be proved is loss. It remains, for whatever reason, a yawning gap in the claimant's case that there is not prima facie evidence of loss. Unexplained events, like the administrators waiving of £90,000 of their fees to protect the Royal Bank of Scotland, cannot make up the difference. In all, and in spite of the vigorous and determined endeavour by Mr Green to show that there is a viable case of conspiracy, I fear that I remain entirely unpersuaded that it is so, or therefore that Blackburne J got any part of his decision wrong. This was not a case that was fit to go to trial and the course he took was, in my judgment, the right one. I would accordingly refuse permission to appeal.

Lady Justice Arden:

25. I agree that this application must be dismissed; in particular I agree with what Sedley LJ has already said about the interpretation of the assignment. There was only a limited assignment of claims, even though the official receiver has written to indicate recently that it was intended to be an all-embracing assignment. The assignment was of claims within the definition of "the Asset" in the assignment dated 12 November 2002 "the Asset" is defined in the recital 3, which states: "The Assignor [which is the Partnership] is alleged to have potential causes of action against inter alia [Burger King Limited and Burger King Corporation], its former administrators PKF and the Royal Bank of Scotland [RBS]. These causes of action are collectively referred to herein as "the Asset" and are more particularly described in the letters before action set out in schedule 1 annexed hereto".
26. Mr Green has accepted that the causes of action are not more particularly described in that schedule and thus, in my judgment, the assignment does not cover them. I also expressly agree with what Sedley LJ has said about the need for a valuation. In the course of his submissions, Mr Green made the point that Mr Oldham (one of the respondents) had a conflict of interest. Of course, Mr Oldham had two roles in this matter. It can be said, in the vernacular, that he had two hats. He was the administrative receiver of the company and the joint administrator of the partnership. He also had, it appears, the responsibility for dealing with the prospective purchasers of the restaurants; that appears from the fact that the letters were sent to him as one of the joint administrators and joint receivers, and the offer from Allied Leisure related not only to the restaurants of Genesis, the company, but also the assets of the Partnership.
27. Since Mr Oldham had two capacities, in my judgment, it is quite proper for him to ask the bidder to review the allocation and I say this even though I would have expected that when he did so he would have explained why he was raising the question. What the claimants would have to show is that Mr Oldham somehow unfairly pushed the allocation in the direction of RBS as secured creditor of Genesis or, rather, it was secured in a stronger way over Genesis's assets.
28. Mr Green has sought to do this in his submissions by saying that, up to September 1997, Mr Oldham was also advising RBS on its position in relation to the claimants' group. That is not enough, because the dealings with Allied Leisure that we have seen were in December 1997 and, moreover, the particular circumstances have to be taken into account, namely that Mr Oldham had these two capacities and therefore had a very proper interest in asking the purchaser to review the allocation.
29. In addition, it is relevant to this point too that there is no evidence of any loss suffered by the allocation. That would be an essential element of showing that the intervention by Mr Oldham was improper. Unless his intervention was improper then their unlawfulness is shown, which is an essential element of the tort of conspiracy relied on. For these reasons, I too would reject the application.

Order: Application refused