England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)

		Royal Courts of Justice Rolls Building, Fetter Lane, London, EC4A 1NL
		21/06/2018

HHJ Paul Matthews :

1. This is my judgment on an application to re-re-amend the petition in these proceedings under s 994 of the Companies Act 2006, complaining of conduct unfairly prejudicial to the interests of the petitioners. The application has come on for hearing and decision at the outset of the trial of the petition. In the petition, the petitioners seek an order for the purchase of their shares in the fourth respondent, AMT Coffee Limited ("the company"). The petition is based in particular on allegations that the first three respondents (the only directors of the company) have been paid excessive remuneration, that the company has failed to pay any or any adequate dividends, and that the first two respondents have enjoyed substantial interest-free and unsecured credit facilities. The petition is defended on its merits. But there is a preliminary issue, which the petitioners seek to address by way of the application to amend.
2. The preliminary issue is whether the petitioners have standing to sue at all. This is a family company, and all the family members have the same surname, McCallum-Toppin. So, for speed and clarity, but without intending any disrespect, I will refer to those family members by their given names. The company was incorporated on 29 September 1993. Four ordinary shares were issued, one each to three brothers, Angus, Allan (the second respondent) and Alistair (the first respondent), and one to their father, Alexander. He died in February 2001, when his share vested in his widow Anna (the third respondent). In April 2003, three new "A" ordinary shares (non-voting) were allotted, one each to Angus, Allan and Alistair.
3. In December 2006, tragically, Angus died of cancer at the age of only 45 years. He was married to Lucy, the first petitioner, and they had two small children, Alexander and Abbi. His will appointed Lucy and Allan as his executors and trustees, and gave his shares in the company directly to Lucy and his children equally, but contingently on their attaining the age of 25 years. (The children were then and are still minors.) The residue of his estate was given on certain trusts. Lucy and Allan obtained a grant of probate to Angus's estate in May 2007.
4. The devolution thereafter of the estate is of some importance. In October 2014 Master Teverson in this Division of the High Court made an order under s 50 of the Administration of Justice Act 1985, removing Allan as executor and appointing Philip Weaver, a partner in the firm of Pitmans LLP, then acting for the estate of Angus, as personal representative and trustee in Allan's place. But in July 2015 a deed of appointment and removal of trustees was executed, whereby Mr Weaver was to retire as a trustee of the will of Angus, and a family friend, Julie Bryan, was appointed as a trustee of the will trusts in his place. Then, just last Friday, 15 June 2018, Morgan J made another order under section 50, removing Philip Weaver as personal representative and appointing Julie Bryan in his place.
5. The petition was issued on 8 November 2016, amended pursuant to the order of Chief Registrar Baister dated 10 April 2017, and then re-amended pursuant to the order of Mr MH Rosen QC dated 21 March 2018. From the beginning, the petitioners have been Lucy and Julie Bryan. In the opening words of the petition they are stated to be acting "in their capacity as the Trustees of Angus McCallum-Toppin's Will Trust". In paragraph 3 of the petition the devolution of the estate of Angus was recited, in substance as already set out in the previous paragraph. However, when the petition was first amended in April 2017 an allegation that the second petitioner had been appointed joint personal representative of the estate (in addition to trustee of the will) by the deed of 14 July 2015 was removed. Paragraph 3 of the petition in its current (and unamended) form states at the end that

"References in this Petition to 'the Trustees' are to the Trustees of Angus's Will Trust at the relevant time".

6. Consequent upon the order of Morgan J made last Friday, the petitioners have applied by notice dated 18 June 2018 to amend further their petition, so as to plead the position of the second petitioner as personal representative of the estate of Angus. In what follows, the words in italics are the words proposed to be added.

(1) The opening words of the petition, describing the capacities in which the petitioners present the petition would be amended to read

"in their capacity as the Trustees of Angus McCallum-Toppin's Will Trust, which incorporates their status as both executors and trustees of the Will."

(2) A new paragraph 3.5 would be inserted, as follows:

"By an Order of the High Court dated 15 June 2018 (and with immediate effect), the second Petitioner was appointed as joint personal representative in place of Mr Weaver."

(3) The words at the end of paragraph 3 would be amended so as to read:

"References in this Petition to 'the Trustees' are to the executors and/or Trustees of Angus's Will Trust at the relevant time".

7. Section 994 of the Companies Act 2006 relevantly provides as follows:

"(1) A member of a company may apply to the court by petition for an order under this Part on the ground–

(a) that the company´s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or

(b) that an 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 provisions of this Part apply to a person who is not a member of a company but to whom shares in the company have been transferred or transmitted by operation of law as they apply to a member of a company.

[ … ]."

8. Angus during his life was a member of the company. He accordingly would have had standing to present a petition under s 994(1). After his death, the shares still being registered in his name, the executors of his will (Lucy and Allan) were not without more members of the company. But Angus's shares had been transmitted to them as such executors by operation of law. They therefore had standing to present a petition under s 994(2). However, Allan was then replaced by Mr Weaver by order of this court under s 50 of the 1985 Act. And Mr Weaver himself has now been replaced as personal representative by Ms Bryan (the second petitioner).
9. Section 50(1)(a) of the 1985 Act relevantly provides that

"the court may in its discretion … appoint a person (in this section called a substituted personal representative) to act as personal representative of the deceased in place of the existing personal representative or representatives of the deceased or any of them."

10. But the Act is silent on what happens in such a case to the estate of the deceased that was formerly vested in the executors. In the present case there is no evidence of any assurance from the original executors Lucy and Allan to Lucy and Mr Weaver, or now from them to Lucy and Ms Bryan. I should say that pre-emption provisions in the articles of association apply to transfers of shares in this company (see article 6). Their existence may explain why no express transfer of the shares appears to have taken place since the death of Angus. The question is thus whether, on the making of an order under s 50, there is an automatic transmission of the estate of the deceased from the old to the new personal representative, without the need for any form of assurance.
11. As I say, there is nothing in the Act itself which states that an order has this effect. Nor is there anything in the Act conferring jurisdiction on the court in making an order at the same time to vest the estate in a new personal representative. I am not aware of any authority, or even any commentary, on the Act, which deals with this question. Mr Dougherty, having had only a slight opportunity to carry out research in response to my question, was unable to find any either. He did refer me to Goodman v Goodman [2014 ] Ch 186, a decision of Newey J (as he then was) but that does not deal with this point at all.
12. However, in principle I consider that the making of the order (at all events, saving provision in that order to the contrary) does have the effect of vesting the estate in the new and continuing personal representatives (and divesting the old). Ex hypothesi the personal representative being removed from office will have had the estate of the deceased vested in him or her by operation of law. It cannot be supposed that the legislature in these circumstances would have enabled the transfer of the powers and duties of the personal representative to another person and yet deliberately left the estate vested in the (now) former personal representative. After all, the court is making this order so that other persons can carry on the administration of the estate. That object would be thwarted if the former personal representatives were still owners, or part owners, of the estate. An express assurance would take time and cost money, and the former representatives might be unable, or unwilling, to make one anyway. If my conclusion is correct (as I consider that it is), then, if the matter rested there, Lucy and Mr Weaver would have had standing to present this petition.
13. But, as I have already said, the matter does not rest there. On 14 July 2015 a deed of appointment and removal of trustees was entered into by Lucy and Mr Weaver on the one hand and a family friend, Julie Bryan, on the other. It may be that this deed was entered into on the assumption that, by this date, the administration of the estate of Angus was complete, and that his personal representatives were now holding his estate on trust for those entitled under his will. Julie Bryan (the second petitioner) was described as being appointed as "a trustee of the Settlement". In the deed, the "Settlement" was defined by the deed as "the Will and the trusts thereof" or possibly just "the trusts thereof". The deed contained no provision for vesting the assets of the estate in the new and continuing trustees. Nor is there any other assurance to be found in the evidence by which the estate of Angus was vested in Lucy and Ms Bryan. Again, this may be explained by the existence of the pre-emption provisions.
14. In their skeleton argument prepared for trial and dated 13 June 2018 (that is, before the order of Morgan J of 15 June 2018 was made and the application to re-re-amend was issued on 18 June 2018), the petitioners relied on the decision of Danckwerts J in Re Cockburn [1957] Ch 438, which refers back to the earlier decision of Sargant J in Re Ponder [1921] 2 Ch 59. Both of these were cases where an administrator had been appointed as personal representative of the estate of an intestate. In each case the estate had been fully administered. The court held that the administrator had become a trustee of the residue of the estate for the benefit of the person entitled under the intestacy rules, and in the capacity of trustee was entitled to exercise statutory powers under the Trustee Act 1925. This is not an express trust, but one arising by operation of law in the stated circumstances.
15. One problem however for the petitioners in this case is that there is in fact no evidence in the witness statements before the court that the estate of Angus has been fully administered. So the factual basis upon which the decisions referred to above were arrived at is lacking. But there were also other problems. Re Cockburn and Re Ponder are cases of gifts of residue. In the present case the gift is a specific gift. But, even if I were to assume that, with the passing now of more than 11 years since the death of Angus, his estate must by now have been fully administered, and that the principle in the cases cited extended to specific gifts, the appointment of Ms Bryan was still only the appointment of her as a trustee. As a general proposition, the appointment of a person as a new or additional trustee does not in itself involve any transfer of the trust estate to the new or additional trustee. This transfer still has to be performed, generally by an express assurance from the retiring trustee to the new trustee. That this is so is shown by (amongst other things) the existence of a statutory exception in section 40 of the Trustee Act 1925.
16. This relevantly reads as follows:

"40 (1) Where by a deed a new trustee is appointed to perform any trust, then—

(a) if the deed contains a declaration by the appointor to the effect that any estate or interest in any land subject to the trust, or in any chattel so subject, or the right to recover or receive any debt or other thing in action so subject, shall vest in the persons who by virtue of the deed become or are the trustees for performing the trust, the deed shall operate, without any conveyance or assignment, to vest in those persons as joint tenants and for the purposes of the trust the estate interest or right to which the declaration relates; and

(b) if the deed is made after the commencement of this Act and does not contain such a declaration, the deed shall, subject to any express provision to the contrary therein contained, operate as if it had contained such a declaration by the appointor extending to all the estates interests and rights with respect to which a declaration could have been made.

[ … ]

(3) An express vesting declaration, whether made before or after the commencement of this Act, shall, notwithstanding that the estate, interest or right to be vested is not expressly referred to, and provided that the other statutory requirements were or are complied with, operate and be deemed always to have operated (but without prejudice to any express provision to the contrary contained in the deed of appointment or discharge) to vest in the persons respectively referred to in subsections (1) and (2) of this section, as the case may require, such estates, interests and rights as are capable of being and ought to be vested in those persons.

(4) This section does not extend:-

[ … ]

(c) to any share, stock, annuity or property which is only transferable in books kept by a company or other body, or in manner directed by or under an Act of Parliament.

[ … ] ."

17. The instrument of appointment in the present case is a deed, and it therefore falls within the scope of section 40. It is made after the commencement of this section, and does not contain such a declaration as is mentioned in subsection (1)(a). It therefore falls, at first sight, within subsection (1)(b). It might therefore be thought that the appointment of Ms Bryan under the statutory power of appointment of new trustees attracted the benefit of section 40 (1)(b), and that accordingly the estate of Angus, including the shares in the company, were transferred automatically to Lucy and Ms Bryan jointly. But section 40(4)(c) excepts from the operation of section 40(1) shares which are "only transferable in books kept by a company". The shares in the company in this case fall within the scope of this exception. Accordingly, in my judgment there was no automatic transmission of the shares to Lucy and Ms Bryan by virtue of this section.
18. Were it not for the order of Morgan J of 15 June 2018, my conclusion would accordingly have been that the second petitioner at least could not claim to fall within section 994 of the Companies Act 2006, and therefore did not have standing to present this petition. But that order changes the position. In accordance with the view that I have expressed earlier, the order not only appoints Ms Bryan as personal representative to act with Lucy, it also vests the estate of Angus in them both (divesting Mr Weaver at the same time). So the position since last Friday is that both petitioners indeed fall within section 994 (2) of the 2006 Act.
19. But, in any event, the petitioners say that it is only necessary that one of two or more executors should sue. They say this is because, as a general rule, it is only necessary for one of two or more executors to deal with the assets of an estate. Rights of action, the petitioners say, are no different from other assets. If for any reason the other joint owner or owners will not sue as claimant or claimants, he or she must be joined as a defendant. However, I was shown extracts from Williams Mortimer and Sunnucks on Executors Administrators and Probate, including paragraph 59–32.
20. This (omitting footnotes) reads as follows:

"If there are two or more executors, all those who are of full age and have proved the will should join as claimants in proceedings. Unless they have acted, executors who have not proved should not be joined, even though they have not renounced. Nor is an absconding executor a necessary party. It seems, however, that where one of two or more executors sells goods of the testator, he alone may maintain an action for the price. The same principle seems to apply where goods are taken out of the possession of one executor. And if one executor contracts on his own account alone, he must sue on such contract though the money recovered will be assets."

The footnotes to this paragraph refer to cases (mostly very old) justifying the proposition that normally all the executors should be joined to a cause of action belonging to all of them. The present is not a case where the cause of action arises out of the conduct of or any transaction entered into by only one of the executors. So this suggests that both personal representatives need to be joined.

21. More useful, perhaps, in this context are the rules of court procedure. The current rules on this question are contained in CPR rule 19.3. (They too are referred to in the footnotes to paragraph 59–32.) Rule 19.3 reads as follows:

"(1) Where a claimant claims a remedy to which some other person is jointly entitled with him, all persons jointly entitled to the remedy must be parties unless the court orders otherwise.

(2) If any person does not agree to be a claimant, he must be made a defendant, unless the court orders otherwise.

(3) This rule does not apply in probate proceedings."

22. Paragraph 59–35 of Williams Mortimer and Sunnucks on Executors Administrators and Probate exemplifies paragraph (2) of that rule, in saying that:

"Where one of two or more executors or administrators refuses to join as claimant or is unable to join as having an interest in the subject matter inconsistent with his position as claimant, the other or others can still bring the claim making the executor who refuses to join a defendant."

23. Although it was not cited to me, I should also mention CPR rule 3.10, which reads as follows:

"Where there has been an error of procedure such as a failure to comply with a rule or practice direction –

(a) the error does not invalidate any step taken in the proceedings unless the court so orders; and

(b) the court may make an order to remedy the error."

24. In my judgment, whatever the old law may have been, it is clear from the provisions of the CPR to which I have referred that, if a cause of action belonging to two or more persons jointly is sued on by one only (or by fewer than all), and the other or others are not made defendants, the proceedings are not invalid (unless the court so orders) and the court may remedy the error if it thinks fit. In other words, it is an irregularity, rather than a nullity. In my judgment, this applies just as much to personal representatives as to other joint owners. The general principle that one personal representative may deal with an asset and in so doing bind the others does not override the current express rules of procedure in this respect.
25. In the present case, it is to be noted that Allan, who was the original second executor of the estate of Angus, was in fact joined to these proceedings at the outset as the second respondent. However, he had not in fact been an executor since 2014, when he was removed by the order of Master Teverson appointing Mr Weaver in his place. So his joinder does not in fact assist in the proper constitution of the claim. At the time of the presentation of the petition, the executors were, as a result of that order, Lucy and Mr Weaver. But Mr Weaver was not joined. Instead, Ms Bryan was joined, in what I assume to be the mistaken impression that the estate of Angus was now vested in Lucy and her jointly, albeit in the capacity of trustees rather than personal representatives. Yet she was not a personal representative, and the estate was not vested in her at all. As a result of the order of Morgan J last Friday, it now is. From a technical point of view, the action is now properly constituted. In one sense, the order of last Friday may be seen as an order remedying the irregularity created by having joined only one of the two personal representatives of Angus at the time of the presentation of the petition, albeit that it does so by bringing the estate to an existing party, rather than by joining a further party to the claim.
26. The next problem is whether it matters that this has occurred only at this late stage, long after the petition was presented, indeed at the beginning of the trial. Given that one of the two personal representatives was joined from the beginning, there is no question of this defect being an incurable nullity. The defect has now been remedied. The problem instead is that the amendment comes late.
27. The principles upon which the court acts in considering a late amendment to amend a statement of case were summarised by Carr J in Quah Su-Ling v Goldman Sachs International [2015] EWHC 759 (Comm), in a well-known passage as follows:

"38. Drawing these authorities together, the relevant principles can be stated simply as follows :

a) whether to allow an amendment is a matter for the discretion of the court. In exercising that discretion, the overriding objective is of the greatest importance. Applications always involve the court striking a balance between injustice to the applicant if the amendment is refused, and injustice to the opposing party and other litigants in general, if the amendment is permitted;

b) where a very late application to amend is made the correct approach is not that the amendments ought, in general, to be allowed so that the real dispute between the parties can be adjudicated upon. Rather, a heavy burden lies on a party seeking a very late amendment to show the strength of the new case and why justice to him, his opponent and other court users requires him to be able to pursue it. The risk to a trial date may mean that the lateness of the application to amend will of itself cause the balance to be loaded heavily against the grant of permission;

c) a very late amendment is one made when the trial date has been fixed and where permitting the amendments would cause the trial date to be lost. Parties and the court have a legitimate expectation that trial fixtures will be kept;

d) lateness is not an absolute, but a relative concept. It depends on a review of the nature of the proposed amendment, the quality of the explanation for its timing, and a fair appreciation of the consequences in terms of work wasted and consequential work to be done;

e) gone are the days when it was sufficient for the amending party to argue that no prejudice had been suffered, save as to costs. In the modern era it is more readily recognised that the payment of costs may not be adequate compensation;

f) it is incumbent on a party seeking the indulgence of the court to be allowed to raise a late claim to provide a good explanation for the delay;

g) a much stricter view is taken nowadays of non-compliance with the Civil Procedure Rules and directions of the Court. The achievement of justice means something different now. Parties can no longer expect indulgence if they fail to comply with their procedural obligations because those obligations not only serve the purpose of ensuring that they conduct the litigation proportionately in order to ensure their own costs are kept within proportionate bounds but also the wider public interest of ensuring that other litigants can obtain justice efficiently and proportionately, and that the courts enable them to do so."

28. In responding to the application for permission to amend, Mr Elias for Alistair complained that the claim to date had been framed solely as a claim brought by the trustees of Angus's will. What the amendments to the petition sought to do was to add to this an alternative claim brought by the executors of Angus's estate. Alistair's pleaded case was that the trustees had no right to bring the claim. If the petition had been framed as one brought by the executors, then the other executor would have had to be joined and to have given disclosure. Moreover, the effect of the amendment, he said, was that statements in the petition regarding the knowledge of the trustees of the will would now also apply to Mr Weaver between the time that he retired as a trustee of the will of Angus in July 2015 and the making of the order last Friday. He complained that there was no evidence that Mr Weaver was content that these averments so far as they related to him should be made.
29. In addition, Mr Elias complained that the application to amend was very late and there was no sufficient explanation as to why it had not been dealt with earlier. But these are, as I see it, less important than the other points which he made. Mr Elias was not suggesting that, if the problems relating to the averments and disclosure could be got over, the trial date would be lost or anything as serious as that.
30. As to adding an alternative claim, leaving disclosure and averments on one side, I do not think it matters very much that the petitioners were alleged to hold the shares in the capacity of trustees rather than personal representatives. As against the respondents, the important allegation is simply that they held them, and that is clearly made. It is now supported by the order made last Friday.
31. So far as concerns the questions of averments and disclosure, yesterday morning I received a letter from Mr Dougherty, copied to the other counsel in the case, including Mr Elias. That letter says, in part, as follows:

"Yesterday, the judge heard my clients' application to amend the Petition. In the course of submissions, I indicated to his Lordship that I would endeavour to ascertain whether Mr Philip Weaver would be prepared to give disclosure in relation to the proceedings, as if he had been joined as a party to the Petition and with regard to the whole period that he was a personal representative of the Estate.

I have now been able to obtain specific instructions on behalf of Mr Weaver to offer an undertaking to the Court in connection with the application to amend: Mr Weaver is prepared to undertake to give disclosure in relation to the Petition proceedings as if he had, indeed, been such a party to those proceedings for that period.

In relation to addressing that disclosure and performing that undertaking, I can confirm that it has been possible to review Mr Weaver's files overnight and to provide a disclosure statement that Mr Weaver has duly considered and signed. A copy of that disclosure statement is attached. Apart from party–party correspondence, there are three documents disclosed."

32. Apart from the express undertaking which is offered by that letter, I infer from its terms and the significant cooperation afforded by Mr Weaver that he is also content with the averments which are now made on his behalf in relation to the state of his knowledge as a personal representative.
33. In my judgment, although the petitioners' advisers really ought to have seen this point coming, and not left it until the last minute, the only substantive problem caused has been that raised very properly by Mr Elias relating to disclosure (and, to a lesser extent, averments). But, following the letter to me yesterday, the scale of the disclosure problem seems now to be very small. The only material change to the case put forward by the petitioners is that the capacity in which some of the characters have been acting is now formulated as an alternative, that is trustee or personal representative. There is no change to the allegations of fact which will be tested by the evidence and, apart perhaps from the three further documents disclosed, no further evidence to take on board. There is therefore no need to adjourn the trial. In these circumstances, which are rather unusual, I think it is right to accede to the application of the petitioners to re-re-amend the Petition in the form presented to me, and I will so order.