Progress Property Co Ltd v Moore & Anor

Over fourteen days I heard evidence and argument in three related actions. The following judgment considers each action separately in turn.

By a Share Purchase Agreement dated 3 October 2003 (“the SPA”) Tradegro (UK) Limited (“TUK”) agreed to sell to Real Estate Property Corporation Limited, since renamed Wigmore Street Investments Limited (“WSIL”), its 75.1% shareholding in Progress Property Company Limited (“PPC”). It was a term of the SPA that prior to completion TUK should procure the transfer by PPC to Foldfree Limited (“Foldfree”), a subsidiary of TUK, of the entire issued share capital of YMS Properties (No.1) Limited (“YMS-1"), a subsidiary of PPC. That transfer was effected on 20 October 2003, and completion of the SPA took place four days later.

The agreement, dated 20 October 2003, for the disposal of the shares in YMS-1 specified a purchase price of £63,225.72. The agreement and price was approved the same day by the board of PPC at a meeting attended by two directors, Mr Charles Price (by telephone) and Mr Paul Clarke, and by the board of Foldfree attended by Mr Cornus Moore (by telephone) and Mr Clarke.

Mr Price was at the material time the sole shareholder in WSIL and in addition held the remaining 24.9% of the shares in PPC. In addition to his position as director of Foldfree, since renamed Moorgarth Group Limited (“Moorgarth”), Mr Moore was and is a director of TUK.

At the heart of the present action is an allegation by PPC that the shares in YMS-1 were transferred at a substantial undervalue of some £4 million. It is said that in procuring the transfer to Foldfree at an undervalue Mr Moore was in breach of his fiduciary obligations as a director of PPC and also of a duty of care. On this basis PPC seeks the return of the shares in YMS-1 from Moorgarth, alternatively claims damages or compensation from Mr Moore and Moorgarth. In their Part 20 claim Mr Moore and Moorgarth contend that if either of them has any liability Mr Price and Mr Clarke were also liable for the same loss or damage and seek an indemnity or contribution under the Civil Liability (Contribution) Act, 1978.

TUK was and is owned by Tradegro Limited, in turn owned by Tradehold Limited, a South African company controlled by its chairman, Dr Christo Wiese. Dr Wiese also chaired and controlled (directly or indirectly) a number of other companies, including Brown & Jackson plc (“B & J”), which until 2002 owned, through subsidiaries, a number of retailers in the UK. These were in the so-called “value” (or down-market) sector, and included Poundstretcher Limited (“PS”) and Your More Store Limited (“YMS”). Their poor performance provoked B & J into a radical restructuring which separated the property interests from the retail operations. TUK acquired YMS and two other retailers, while B & J retained the larger and more successful PS business. At the same time the freeholds of those premises owned by B & J from which YMS and PS operated were transferred to indirect subsidiaries of PPC (then known as Tradegro (UK) Property Holdings Limited), a newly formed subsidiary of TUK. The YMS freeholds went into YMS Properties (No.2) Limited (“YMS-2"), a subsidiary of YMS-1; a similar pattern and nomenclature were followed with the PS freeholds. The YMS properties were transferred into YMS-2 with values calculated on a vacant possession basis, and YMS continued to occupy the premises informally, without any leases being put in place.

In an attempt to turn matters round, Dr Wiese brought new forces to bear. Mr Carel Stassen was engaged as Managing Director of YMS and given a personal equity participation in that company; and Mr Moore moved from South Africa to Switzerland to oversee Tradehold’s UK interests, becoming a director of TUK. Mr Price, who had been advising B & J for some time on property matters, was brought more directly into the frame. His increased involvement was formalised in May 2003, when: (a) his company entered into a property asset management and services agreement with PPC; (b) he was appointed Managing Director of PPC; and (c) he was given a 24.9% shareholding in PPC (though on terms requiring him to return the shares if he ceased to be Managing Director or his company was no longer instructed on the management of the properties).

A key part of Mr Price’s remit was to manage and raise finance from PPC’s property portfolio. Under a Facilities Agreement dated 2nd May 2003 Nationwide Building Society (“Nationwide”) agreed to provide funds of £20,451,750 secured on the YMS and PS freeholds. A precondition imposed by Nationwide was that formal leases be concluded with the retailers, to include standard terms for full repairing and insurance (“FRI”). This posed a problem. The properties in the portfolio, and in particular those occupied by YMS, were in significant disrepair. A survey produced by independent surveyors GRD in early

In the event, YMS did sign FRI leases. Mr Stassen did not however agree to this course until he had obtained an assurance from Mr Moore, with the approval of Dr Wiese, that YMS would be given an indemnity against the costs it might be required to incur in satisfying the repairing liability.

For reasons which do not need to be explored but may have owed much to personal chemistry, relations between Mr Price and the Tradehold side degenerated to a point where Dr Wiese towards the end of July 2003 gave Mr Price the required six months notice to terminate the services agreement with PPC. In further discussions, it was agreed that Mr Price would acquire PPC from TUK, and negotiations to this end proceeded through August and September 2003 culminating in the SPA on 2nd October 2003. TUK was assisted by Walker Morris as solicitors, and advised by PwC on accountancy matters: their opposite numbers acting for Mr Price were DLA and Sinclairs.

The essential structure of the deal was that the purchase consideration would consist of payment of PPC’s net asset value together with repayment of inter-company indebtedness of PPC and its subsidiaries to TUK. The net asset value was the value of the portfolio of properties, essentially the YMS and PS freeholds, less the amount of its total indebtedness. A valuation of the YMS and PS portfolios was obtained on 1st September 2003 from DTZ, in essence an update of an earlier valuation in April 2003 produced to obtain the original financing from Nationwide.

Since ownership of the freeholds would now move out of the TUK group, it became imperative to honour Mr Moore’s assurance to Mr Stassen that YMS would be given an indemnity against the FRI liability. Logic also suggested that in the new circumstances the ultimate liability should pass to the new owner of YMS-2. Consistent with this, the running document entitled “Summary of principal commercial terms” passing between the parties indicated that (1) a deed of indemnity was being discussed between Tradegro and YMS (2) there was broad agreement on the provision of a counter-indemnity by PPC. The same applied to the PS

In early September 2003, as the negotiations were moving towards finality, the parties decided (for reasons which it is unnecessary to explore) that the YMS properties should be excluded from the deal. This result could have been achieved in a number of ways. That adopted by the parties was to agree that before completion of the sale of PPC the latter would sell its entire shareholding in YMS-1 to a nominee of TUK.

The SPA accordingly provided in Clause 4.1 that

“Between the date of this agreement and Completion the Vendor shall procure the transfer by the Company of the entire issued share capital of YMS Properties No.1 Limited to Foldfree Limited (a direct subsidiary of the Vendor) pursuant to the agreement in the agreed form.”

In terms of the overall deal the amount which Mr Price (or WSIL) would end up paying for PPC would not be changed by the amount of the purchase price for the YMS-1 shares. This was because payment for those shares was to be effected by a reduction in the indebtedness of PPC to the TUK group and hence a corresponding reduction in the amount payable under this head by WSIL pursuant to the SPA. From this point of view, the figure was entirely unimportant. If, nonetheless, it henceforth featured strongly in the negotiations, this was due to two considerations.

The first was a desire on the part of the lawyers to avoid any later suggestion that the disposal of YMS-1 was being on done on terms which constituted financial assistance and infringe section 151 of the Companies Act, 1985. It was for this reason that Mr Gerber had required (with the support of Mr Emmett) the indication in the agreed form that the price should correspond to the market value of the shares.

In an email sent to Mr Emmett on 14 October 2003 Mr Gerber set out Mr Price’s proposal as follows:

Of course, even if section 151 were potentially engaged, it could not preclude the payment of a price in excess of market value. A simple approach might therefore have been to eschew any attempt to reduce the DTZ value by reference to the repairing liability, since the higher price of the YMS-1 shares would make no difference to the overall deal. This course turned out however not to be available, because of a further matter which now exercised the parties and their advisers.

This concerned the impact of corporation tax. The properties had been acquired by YMS-1 (through YMS-2) and booked at vacant possession value of £8.62 million. On the face of it their value had been increased by more than £3 million by the execution of the FRI leases. If the DTZ

On seeing this comment Mr Moore was concerned. This was understandable, since under Clause 1 of Schedule 5 of the SPA TUK had agreed to pay WSIL an amount equal to any liability of PPC or its subsidiaries to pay any tax incurred by reason of any event occurring before completion, albeit capped at £1 million. He asked his team to advise on the risk (if any), commenting in an email of 14 October 2003 that if there was any “we must be very careful in the minutes and documents that there can be no doubt about the repairing liability existence.” PWC confirmed to him that there was indeed a risk, adding - gallingly - that it could have been avoided if the shares in YMS-1 had been moved before the parties had entered into the SPA (since the transfer would then have been intra-group).

On 17 October 2003 Mr Gerber sent Mr Emmett two documents which had been approved by Mr Price.

The first was a revised version of the proposed minutes for the board meeting of PPC to approve the sale of the YMS-1 shares. Clause 2.1 of the those minutes referred to (a) the DTZ valuation of £11.83 million for the YMS properties, (b) the original cost of £8.26 million, and (c) the survey reports estimating the costs of repair at £4,672,717. Clause 2.2 of the draft minutes, entirely the product of DLA’s amendment, read:

“It was noted that as a pre-condition of the sale of YMS Properties No. 1 to Foldfree ... Tradegro (UK) Ltd (TUK) and Tradegro Limited (“TL”) had entered into deeds of indemnity and agreement with Your More Store Ltd under which TUK and TL had agreed to indemnify Your More Store Ltd in respect of repairing obligations. The said deeds of indemnity were produced to the meeting and their contents noted. The Board noted that there was no intention to enter into or offer on behalf of the Company any counter-indemnity to TUK or TL in respect of the obligations of either under the deeds of indemnity aforesaid. A confirmatory letter from TUK and T L to this effect was produced to the meeting and its contents noted.”

Clauses 2.3 recorded the amount of the indebtedness of YMS-1 to

The second document was a draft of the confirmatory letter referred to in the draft minutes.

A key element in the proposal set out in Mr Gerber’s email of 14 October 2003 had been its reference to an indemnity - a patent misnomer for a counter-indemnity - given by PPC to Tradegro in respect of the repairing liabilities. It was the release of PPC from liability under that counter-indemnity which was said to give rise to a reduction in the market value of the shares to the extent of 85% of the repairing liabilities. Mr Price, on reading this email, contacted Mr Gerber to point out that not only had PPC given no such counter-indemnity to Tradegro, but that, since the excision of YMS from the deal, the original proposal to do so (recorded in the running “Summary of principal commercial terms”) had been restricted to PS and excluded YMS. In consequence, the minutes as revised by Mr Gerber now deleted the reference to the agreement by PPC to (counter)-indemnify Tradegro and stressed that there was no intention to enter into any such counter-indemnity.

On considering the drafts received from Mr Gerber Mr Emmett noted the obvious departure from Mr Gerber’s email of 14 October 2003 and was concerned about their impact on the rationale for a reduction in price. On the morning of Monday, 20 October 2003, having tried unsuccessfully to telephone Mr Gerber, he sent him an email at 0954 setting out his concerns:

“I have just tried to call you but there was no reply. Can you give me a call at a convenient moment so that we can discuss what needs doing today.

In the meantime I have been looking at your mark up of the PPC minutes in relation to the YMS sale and I am a bit confused. I understand (and I have checked this point again today) that PPC agreed some time ago to counter indemnify TUK in respect of its agreement to indemnify both YMS and Poundstretcher. The Poundstretcher arrangements have now been formalised and a counter indemnity from PPC to be put in place on completion of the PPC sale.

On the YMS side TUK is effectively to release PPC from its counter indemnity as part of the consideration to PPC for the sale of the shares in YMS Properties (No.1). This justifies a lower cash consideration being paid by TUK to PPC for those shares.

If there is no pre-existing liability on PPC which TUK is to take over relating to the repairing obligations of the YMS properties, I’m not sure how PPC can justify taking those repairing obligations into account to

There was almost certainly a later discussion between the two men that
morning, following which Mr Emmett produced a revised version of the
minutes with crucial changes to Clause 2.2, which now read:

“It was further noted that the Company had previously agreed to counter indemnify Tradegro UK Ltd (TUK) in respect of TUK’s indemnity to Your More Store Ltd (YMS) in relation to the repairing obligations referred to in paragraph 2.1 and it was a precondition of the Sale that TUK (which is Foldfree’s parent company) release the Company from those indemnity obligations. A copy of an agreement under which TUK had agreed to indemnify YMS in respect of those repairing obligations was produced to the meeting and its contents noted.”

This draft was sent to Mr Gerber by email at 1212. The covering message
asked Mr Gerber to let Mr Emmett have any comments, and continued:

“Otherwise, please pass a copy to Charles Price so that he is aware of their content. Paul Clarke will call him this afternoon to hold the meeting.”

At 1224 Mr Gerber replied:

“This is fine save that the outstanding point remains the quantum of the Nationwide debt owed by YMS. Charles Price is of the view that this should be a lower figure (circa £5.5m) and clearly this impacts on the overall funds flow position. We are still trying to confirm with Nationwide.”

At 1234 Mr Gerber, as requested by Mr Emmett, forwarded to Mr Price the email from Mr Emmett with the revised minutes. In his covering email Mr Gerber told Mr Price that, assuming the Nationwide-YMS debt was agreed, he would be called to participate in the PPC board meeting that afternoon to dispose of YMS. Mr Price replied at 1451 that he was available on his mobile. By this time he was in his car, together with wife (who was driving) and children on his way north from London to Yorkshire, and emails sent to and from him were being relayed telephonically by, or dictated to, his secretary.

At 1742 Mr Gerber sent by fax to Mr Price’s hotel at Thorpe Park copies of the (1) YMS Board Minutes (2) the YMS Sale Agreement and (3) the YMS Deed of Release.

Some minutes later, starting at 5.50 p.m., five board meetings - of PPC, Foldfree, TUK, YMS-1, and YMS-2 - were held back-to-back at the offices of Tradegro in Wetherby. The only director of any of the companies who

The final draft produced by Mr Emmett and sent to Mr Gerber that morning - with an alteration in the indebtedness figure to £5.848m agreed that afternoon - was used as the actual minutes of the PPC meeting. Much of it was also repeated verbatim as a substantial part of the minutes of the Foldfree and TUK meetings. (The meeting of YMS-1 was concerned solely with approval of the share transfer - resolved after a brief adjournment during which the transfer agreement was signed by Mr Clarke and Mr Whitelegg for both parties - and the resignation of Mr Price as director.) The meetings approved the sale and the other ancillary documents, which were then executed.

The purpose of Clause 2 of the minutes, as appears from Clause 2.4 , was to provide a justification for a reduction of the market value by reference to repairing liabilities. I confess to serious doubt as to the underlying logic. The release of PPC from a contingent obligation to pay TUK a sum equal to the repair liabilities no doubt would have had a monetary value, which could have been set off against and treated as part payment of the purchase price for the YMS-1 shares. But this route was not taken. Instead, the release of the liability under the counter-indemnity was assumed to impact on the market value of the shares, a proposition which I have found impossible to understand. However this may be - and neither counsel sought to found on such an argument - the suggested justification predicated the existence of both an indemnity and a counter-indemnity.

The basis of PPC’s case was that neither existed. Though initially in issue, that contention was accepted by the defendants some time before the case came on for trial, and understandably so. In terms of formal documents, no TUK indemnity to YMS was signed until the meetings on 20 October 2003, and no counter-indemnity was ever executed. Of course, neither an indemnity nor a counter-indemnity requires to be in writing, and it

In consequence, the rationale so carefully negotiated and recorded in Clause 2 of the minutes to justify the proposition that the purchase price represented market value had no basis in fact, even if it had been logically sound.

In these circumstances, the defendants adduced expert and other evidence directed to showing that the quality of the tenant covenant and the state of repair required a reduction in the DTZ valuation (which took no account of either factor) of even more than the £4 million. The counter-evidence adduced by PPC sought to establish that the DTZ valuation was in fact too low. For reasons which will become apparent in due course, that is not a matter on which it will be necessary for me to adjudicate. For the purposes of present analysis, it is in any event more convenient to proceed on the undetermined assumption that the sale price was based on a undervaluation of the YMS portfolio and was in consequence less than the market value of the shares of YMS-1.

Though PPC’s case was originally advanced on a wide variety of grounds, a number of arguments and causes of action were (properly and sensibly) jettisoned in the course of the evidence and PPC’s closing submissions. Among these was an argument that disposal of the YMS-1 shares at an undervalue would have breached section 151 of the Companies Act, 1985: the fears of the lawyers on this point at the time of the negotiations had in fact been groundless.

The remaining arguments fell within a comparatively short compass.

PPC contended that the disposal of the shares at an undervalue constituted

PPC submitted that a transaction is not only illegal but ultra vires whenever the company has entered into a transaction with a shareholder which results in a transfer of value not covered by distributable profits, and regardless of the purpose of the transaction. This proposition was said to be vouched by the decision of Hoffman J in Aveling Barford Ltd v Perion Ltd [1989] BCLC 626.

PPC’s submission is not supported, and indeed is positively belied, by Aveling Barford. In that case the plaintiff company sold a property at what was known to be an undervalue to a company controlled by an individual who also controlled the plaintiff company. The sale was approved by all the shareholders. That would not however validate the sale if the disposal of the shares constituted a prohibited distribution of the company’s assets to a shareholder and was therefore ultra vires. Though the company undoubtedly had power under its memorandum to sell its assets, Hoffman J held that the transaction was not a genuine exercise of that power, since “it was a sale at a gross undervalue for the purpose of enabling a profit to be realised by an entity controlled and put forward by its sole beneficial shareholder”. Though the transaction was not a sham and was in law a sale “it was the fact that it was known and intended to be a sale at an undervalue which made it an unlawful distribution.”

In the present case, however, Counsel for PPC expressly accepted that Mr Moore “subjectively knew and intended [the YMS transaction] to be a sale at market value”, and indeed the contrary was never pleaded or suggested by him to Mr Moore in cross-examination. He was therefore driven to argue that the words I have quoted from Hoffman J’s judgment were mere obiter. On the contrary, it is clear that they are not only a fundamental part of his reasoning, but the immediate basis of his decision. Even if they fell technically to be analysed as obiter, they not only represent the considered view of Hoffman J but are to my mind entirely convincing.

Accordingly, I reject the claim against Mr Moore, and by extension Moorgarth, in so far as it is based on the contention that the transaction was ultra vires.

PPC further argues that Mr Moore was in breach of fiduciary duty by reason of the rule against conflict or dual employment. Again, this is also said to entitle PPC to the return of the shares or monetary relief as against

The suggested vice is that Mr Moore was a director of both PPC and Foldfree and owed conflicting duties to each. But this is not without more a breach of duty. At the time, the shareholders of PPC - Mr Price and TUK - were well aware of Mr Moore’s position in the Tradegro group and that the sale was to a Tradegro subsidiary, but accepted without demur his role in the negotiation and conclusion of the transaction. It is not therefore something of which PPC can complain: Kelly v Cooper [1993] AC 205; Bristol & West Building Society v Mothew [1998] Ch 1 at 18-19 per Millett LJ.

That is not to say that a fiduciary in such a situation is entirely without obligation. The position is summarised by Millett LJ in Bristol & West Building Society v Mothew [1998] Ch 1 at 19:

“Even if a fiduciary is properly acting for two principals with potentially conflicting interests he must act in good faith in the interests of each and must not act with the intention of furthering the interests of one principal to the prejudice of those of the other... But it goes further than this. He must not allow the performance of his obligations to one principal to be influenced by his relationship with the other. He must serve each as faithfully and loyally as if he were his only principal.

Conduct which is in breach of this duty need not be dishonest but it must be intentional. An unconscious omission which happens to benefit one principal at the expense of the other does not constitute a breach of fiduciary duty, though it may constitute a breach of the duty of skill and care. “

In the present case, there was no evidence of any such intentional conduct by Mr Moore. Indeed, the contrary was never suggested by PPC, let alone explored by PPC in cross-examination of Mr Moore, and it was, as I recorded above, accepted by PPC that Mr Moore “subjectively knew and intended” that the sale was at market value.

I accordingly reject the claims against Mr Moore and Moorgarth in so far as they are based on the rule against conflict of interest. A further ground for doing so is the assent of all the shareholders to the transaction, which I discuss in Paragraphs 49 ff below.

The remaining cause of action against Mr Moore is that he was in breach
of his duty of care to PPC in bringing about a transaction at less than
market value. While accepting that Mr Moore had genuinely believed in

Mr Moore’s first answer to this claim (also advanced as a defence to the conflict claim) is that the transaction was approved by the two shareholders of PPC, namely Mr Price and TUK.

It is not in doubt that the shareholders can waive any breach of duty by the director by approval of the transaction: Bamford v Bamford [1970] Ch 212. And, provided that all the shareholders assent, it matters not that the approval is expressed informally and not by resolution at a general meeting: Re Duomatic Ltd [1969] 2 Ch 365.

For this purpose Mr Moore focuses primarily on the board meetings on 20 October 2003, in particular - so far as Mr Price is concerned - on the PPC board meeting, and Mr Price’s approval of the proposed contract to sell the shares at £63,225.72.

Mr Price seeks to counter this argument primarily by suggesting that he
was at the time unaware of the content of the minutes and in particular
that they recited the existence and release of a counter-indemnity, which
he knew did not exist. This raises two principal questions.

Mr Price’s position was set out in his witness statement, adopted as his evidence in chief. He there stated that the last draft of the minutes which he had seen was that sent by Mr Gerber to Mr Emmett on Friday, 17 October 2003, which positively disavowed the existence of any counter-indemnity or intention to execute one. He was contacted while driving north to Yorkshire on the afternoon of 20 October 2003 by Mr Emmett to say that he was in a board meeting - of which Mr Price stated that he had no prior warning. Mr Moore, according to Mr Price, asked whether the minutes could be taken as read, and he agreed, assuming that they were Mr Gerber’s version (i.e. of 17 October 2003).

At the time this evidence was given, PPC was withholding disclosure of all communications between Mr Price and Mr Gerber from 15 October 2003 onwards on the grounds of legal privilege. On the application of the defendants I ruled that the privilege had been waived. The documents

As regards the email to him from Mr Gerber at 1234, forwarding Mr Emmett’s email with his draft minutes attached, Mr Price said that, as was clearly the case, the email from Mr Gerber had gone to his office, while he was in his car. It was opened by his secretary, who rang him to tell him about it but he did not ask her to read out the attached draft minutes, since he assumed that they remained as drafted by DLA. He remained insistent that he had no conversation whatsoever about the board minutes with Mr Gerber at any time on 20 October 2003.

As to the fax sent to his hotel at Thorpe Park at 1742 with copies of the draft minutes and other documents, he said that the hotel had not delivered it to him either on his arrival (around 6.15 to 6.30 p.m.) or at any time before he left three days later. He added that he had been given a copy of the deed of release, but not the other documents, the following morning at the DLA offices in Leeds. He noted that it had been revised without seeking his approval and queried the reason that afternoon when he saw Mr Gerber, who had replied that he had done so out of an abundance of caution. The remaining documents were included in a “bible” delivered to him a few days later, but he had not read them for some time. When he eventually did so, he was very surprised but did not seek any explanation from Mr Gerber for the changes.

If Mr Price’s account is correct, I would have to conclude that Mr Gerber, who had so far consulted his client on every draft document, did not contact Mr Price on the morning of 20 October 2003 to tell him of the fundamental changes which Mr Emmett was seeking and to explain the reasons for them. In particular, Mr Emmett was stating that his client had confirmed that there was a counter-indemnity in place, which was directly contrary to the instructions which Mr Gerber had received from Mr Price and which had led to the omission (and positive denial) of any such suggestion in the draft which Mr Emmett was now seeking to change. No competent solicitor would in such circumstances have accepted the alterations without checking back with his client.

It is highly probable that the two lawyers would have spoken by telephone (as foreshadowed by Mr Emmett’s first email that morning) and that basic agreement in principle was reached before he sent his draft revision at 1212. That conclusion also gains support from the fact that Mr Emmett was only asking for “comments” and that Mr Gerber was able to say that the draft was “fine” within 12 minutes. His reply at 1224 did refer to the one outstanding point on the figure included for the Nationwide debt on which he relayed Mr Price’s view, which suggests that he had some discussion with Mr Price on this subject. It is hard to believe that he

Similarly, in the absence of Mr Price’s prior agreement to the inclusion of the reference to the counter-indemnity, it is scarcely explicable that Mr Gerber simply forwarded Mr Emmett’s revised draft without even a request for Mr Price’s comments, let alone approval.

In short, Mr Price’s account requires conduct on the part of Mr Gerber which is not just highly improbable, but well-nigh incredible.

Mr Price’s account of matters after the meeting is also hard to credit. It involves the proposition that a leading hotel failed to pass a fax to him, not only on arrival, but at no time during the next three days. His suggested conversation with Mr Gerber as to the reasons for the deed of release lack, to put it mildly, the ring of truth. And his failure to protest to Mr Gerber when he finally did read the minutes some time later is scarcely consistent with his suggested surprise at their contents.

In the light of the above matters I am unable to accept Mr Price’s evidence of ignorance and am satisfied that he was fully aware that the minutes sought to justify the reduction in price by the release of a counter-indemnity. I have reached this conclusion without taking into account any inference to be drawn from the failure, for which I was offered no explanation, of PPC to call Mr Gerber as a witness.

Even on Mr Price’s case, it is not in dispute that he approved the transaction at the stated price of £63,225.72. He did so in the belief that there was no counter-indemnity to be released, which was in fact correct, and therefore, necessarily, that it provided no justification for the reduction in price. His assent to the transaction was accordingly on a basis which corresponded to the true position.

In these circumstances, it would be irrelevant that the minutes incorrectly proceeded on the basis of the release of a (non-existent) counter-indemnity, even if that had been unknown to Mr Price.

Accordingly, in my judgment Mr Price’s assent to the transaction would not have been vitiated by his ignorance of the content of the minutes, even if - contrary to my finding - that had been the case.

PPC points out that Mr Price’s vote at the board meeting was in his capacity as a director. In my judgment, this is irrelevant. What matters is that the person who is a shareholder should have manifested his assent to the transaction. That is still the case if the assent is evidenced by a vote at a board meeting. I can see no reason of principle to the contrary, and counsel was unable to point to any authority to support his contention.

In any event, the defendants can also rely on the prior events of which the meeting was the culmination. The content of the transaction (and of the minutes) was negotiated through Mr Gerber acting for Mr Price in his personal capacity, beginning effectively with the email of 14 October 2003 from Mr Gerber, and Mr Price’s approval of the proposed contract (and minutes) was notified to Mr Emmett by Mr Gerber. That assent would have been entirely effective, even if Mr Price had not himself participated in the board meeting (for example, if he could not be reached on his mobile when phoned to join in and Mr Moore had instead been contacted to form the quorum). The result cannot sensibly be affected by the fact that in the event he did vote at the meeting.

At a late stage PPC sought to argue that Mr Price’s assent was vitiated because he believed that the existence of the TUK indemnity alone would justify a reduction in price. This allegation was not pleaded, and was directly contrary to what Mr Price had clearly and explicitly stated in paragraph 85 of his witness statement, adopted as his evidence-in-chief. In these circumstances, as counsel for the defendants submitted, it was not a contention which was open to PPC.

In any event, the proposition that the TUK indemnity on its own justified a reduction in price was completely illogical, and I am unable to accept that it formed any part of the thinking of Mr Price, an experienced and, in my estimation, intelligent business-man. Mr Price told me that his belief had been based on advice received from Mr Emmett, TUK’s lawyer. That suggestion was, to put it mildly, inherently improbable; nor was it put to Mr Emmett in cross-examination; and it was completely inconsistent with Mr Emmett’s reasons set out in his email of 20 October 2003 for requiring the minutes to record the counter-indemnity and its release. Indeed, as I indicated above, it is inconceivable that Mr Gerber would not have relayed the essence of those reasons to Mr Price.

Finally, Mr Price was fully aware of the nature and content of the transaction when giving his approval. His assent could not have been affected by a misunderstanding on his part as to whether or how the price could be justified, even if he had entertained his suggested belief.

In summary, since both shareholders of PPC assented to the transaction,
no claim will lie against Mr Moore for having procured it. That provides
Mr Moore with a defence in limine against all the claims for breach of duty,
and in particular that based on breach of his duty of skill and care.

My conclusion on assent means that two further questions do not arise.

But for the assent it would have been necessary to consider whether there
was a breach of Mr Moore’s duty of care. This would have required me to
rule on the submission made by counsel for PPC that Mr Moore’s belief in
the existence of a counter-indemnity, though genuinely held, was wholly
unreasonable and negligent, as was therefore his procurement of the sale.
I observe that any such stricture would seem to apply with even greater
force to Mr Price who voted for the transaction notwithstanding that he
understood (correctly) that there was no counter-indemnity (and indeed,
as I have found, was aware of the falsity of the rationale in the minutes).
In these circumstances, I think it not only inappropriate but unhelpful to
the parties that I should explore this aspect of the matter, when it can have
no effect on the outcome of this action.

It is further unnecessary for my decision to consider what damages might have flowed from breach of the duty of skill and care. I should however observe that both sides proceeded on a misunderstanding of the true issue. The extensive evidence which was adduced, analysed, and debated - at great length - before me sought to establish the “correct” figure for the market value of these shares, determined objectively, including (on one side) reference to matters and evidence subsequent to the date of the disposal. As I pointed out however during the hearing, the question before me was different, namely what a competent director, acting reasonably, would have done to determine the appropriate price to be inserted in the contract, if no reliance had been placed on the non-existent counter-indemnity, and what figure would ultimately have been agreed. That question was not addressed in the evidence in any significant way or, as it seemed to me, at all, and both counsel were reduced in closing submissions to what were largely speculative assertions devoid of appropriate evidential underpinning.

There can in my view be little doubt that the directors would have sought a fresh valuation which considered and addressed the tenant covenant and (so far as might be relevant) the state of repairs, and it is highly probable that they would have returned to DTZ for that purpose. I can see no reason why DTZ would at that time have given a valuation lower than the £10.33m which it later produced retrospectively in 2005 and was used for the tax return in 2006 (as I record in Paragraph 80 below in the context of the second action). The parties would then have had to decide whether to proceed on this basis, despite the tax liability thereby generated, or to unscramble and, possibly, restructure the deal. At this point, however, one moves into areas of speculation beyond the submissions advanced to me by counsel. In these circumstances, and given that the question of damages does not arise in the light of my decision on liability, I think it inappropriate to proceed further.

It also follows that issues of dispensation under section 727 and
contribution do not require to be determined.

I therefore propose to order that both the claim and the Part 20 claim be
dismissed in their entirety.

The second action concerns the operation of Schedule 5 of the SPA,
paragraph 1 of which, entitled “Tax Indemnity” provides that:

“The Vendor covenants to pay to the Purchaser an amount ... equal to any liability of any member of the [PPC] Group to make a payment of or an increased payment of Tax which arises by reference to an Event occurring or income, profits, or gains earned, accrued or received on or before Completion.”

In the course of correspondence on the completion accounts Mr Price, on
behalf of WSIL, suggested that the sale of YMS-1 had taken place at an
undervalue, and in particular that no reduction from DTZ’s valuation of
£11.83m could be justified by the release of the non-existent counter-
indemnity referred to in the minutes. On this basis, a substantial tax
liability had arisen, entitling WSIL to a corresponding payment under the

This was disputed by TUK. Even ignoring the release of the counter-indemnity, upon whose existence TUK still insisted at that time, TUK maintained that the YMS-1 properties were not worth £11.83 million. That figure had been taken from the DTZ valuation of September 2003, which had explicitly refrained from considering or taking account of the covenant strength of YMS and the state of repair of the property. TUK procured a letter from Stevens Scanlan dated 31 May 2005 which opined that these factors would have reduced the aggregate market value of the properties to just under £8m. Mr Price then commissioned a revised report dated16 November 2005 from DTZ, which having taken account of the two factors, lowered its valuation to £10.33m. That was used as the basis for the tax return filed by PPC on about 15 February 2006, giving a market value for the shares of £2,123,855, a figure which was not challenged by the Revenue. The resulting tax was paid in four instalments between April and October 2006.

In the present action, the court is asked to decide whether WSIL is entitled to recover under paragraph 1 of Schedule 5 the tax assessed and paid by PPC by reason of the disposal of YMS-1.

TUK seeks to rely on paragraph 4.3 of Schedule 5, which provides that:

“Subject to paragraph 4.2, the Purchaser shall and shall procure that the Group will take such action and institute such proceedings and give such information and assistance as the Vendor may reasonably request to dispute, resist, appeal, compromise, defend or mitigate the matter giving rise to the claim and any determination in respect of it.”

In a letter dated 16 August 2006 to Olswang, the solicitors for WSIL,
Eversheds, acting for TUK, set out four reasons why its client maintained
that the YMS-1 shares had been sold at market value. They asserted that:

The letter required that the four points should be taken up with the Revenue pursuant to paragraph 4.3 of schedule 5 of the SPA, and “in consideration of PPC doing so” TUK agreed to indemnify PPC in the terms required by paragraph 4.2.

Olswang did not respond positively and further correspondence ensued culminating in a letter of 14 November 2006 from Eversheds. Under the heading “Submission” it made what it called a final request that WSIL procure the making of submissions to the Inland Revenue, accompanied by the attached report of Martin Farr of GVA Grimley commissioned by TUK. That report expressed the view that (1) the tenant covenant of YMS was so weak that the market value of the properties at the relevant time had to be based on vacant possession, and (2) on that basis, and taking into account the poor state of repair, the market value had been only £5.85m. WSIL was asked to make a series of points to the Revenue based on or resulting from that report, ending with the conclusion that the market value of the shares had been no greater (and in fact less) than the purchase price of £63,225.72. Despite some interpretative gymnastics on the part of counsel for PPC, it is in my view clear that PPC was no longer being required to advance the earlier first three incorrect points in its submission to the Revenue.

On 24 November 2006 Olswang replied that PPC was prepared to make submissions to the Revenue encompassing the points made in Eversheds’ latest letter and Mr Farr’s report. It added that “before doing so, we should however be grateful for your comments on the questions and queries raised by BDO [in an attached letter] as these points are plainly relevant to any submission that is made”. In its attached letter BDO asked three questions. In its response of 27 November 2006 Eversheds answered the first two. It failed however to react to the third question, namely whether Grimley were in a position to demonstrate the worthlessness of the covenant and whether that was borne out by subsequent disposals of YMS properties by Moorgarth after completion.

On 8 December 2006 Olswang informed Eversheds that PPC had no contractual obligation to make any submission to the Inland Revenue and had decided not to do so.

The first issue is whether the submission which PPC was asked to make to the Revenue was one which was “reasonably requested” by TUK, as required by paragraph 4.2.

If asked to answer that question in relation to the request in the letter of 16 August 2006, I would have considered that it was not reasonable. The first three of the four points which PPC was required to make were clearly wrong, as is now accepted by TUK. Importantly, moreover, two of these points were to the knowledge of PPC factually incorrect, and PPC would have been guilty of fraudulent conduct if it had advanced them to the Revenue.

The letter of 14 November 2006, however, limited the request to the fourth point concerning the true value of the properties, though reducing the value to £5.85m based on the report from Mr Farr. Questions of valuation are ultimately a matter of opinion, not fact, and PPC could without any impropriety have relayed the Farr report to the Revenue, even though it had advice from another source which disagreed with Mr Farr.

Mr Price told me that he feared tarnishing his reputation with the Revenue. In the absence of any supporting evidence, I do not feel able to proceed on the basis that there was any serious risk of this nature, given that PPC had already put in a tax return at a higher level and paid the tax assessed on that basis, and was merely asking for a re-examination based on a further independent valuation.

Significantly, moreover, PPC, in Olswang’s letter of 24 November 2006, intimated its willingness to put in the requested submissions subject to receiving answers to BDO’s question, which indicates that it did not regard the request as in principle unreasonable. I do not consider that the absence of an answer to the third question asked by BDO was of critical importance or rendered the request unreasonable.

I therefore consider that PPC was under an obligation to make the submissions to the Inland Revenue requested in the letter of 14 November 2006.

TUK’s primary submission is that breach of that obligation precludes recovery under the tax indemnity.

Initially, counsel sought to ground this submission solely on a general principle that a party to a contract cannot take advantage of his own wrong, relying for this purpose on Alghussein Establishment v Eton College, [1988] 1 WLR 587 [HL]. Perusal of that decision indicates however that the

It is evident that no similar operation is called for in the case of schedule 5, and the “principle” discussed and applied in Alghussein does not therefore assist TUK. In determining the legal consequences of PPC’s breach, the relevant question is in my view of a different nature, requiring the court to determine whether paragraph 4.3 is a condition precedent or a condition or term whose breach discharges the Vendor from liability under paragraph 1, or alternatively only a lesser term breach of which sounds in damages. (Neither party sought to argue that it was an “intermediate” term, where the consequence is dependent on the importance or effect of the breach.)

In deciding this question, which is one of construction, four matters are in my view of particular significance.

Firstly, paragraph 4.3 could be breached in a multitude of ways and circumstances. Many of these might give rise to loss far below the level of the tax to be recovered under the indemnity, or even no loss. Forfeiture of the entire claim would thus very often be a wholly disproportionate response to the breach.

Secondly, paragraph 4 of Schedule 5 sets out what is to happen when the Purchaser becomes aware of any matter which gives or might give rise to a claim under the covenant in paragraph 1. It begins with a notice to be given by the Purchaser with details of the claim (para. 4.1), followed by access to be afforded by the Purchaser to the Vendor to its premises, personnel, assets, documents and records (para.4.2). Paragraph 4.3, set out in full above, then provides in wide-ranging terms for the Purchaser to take such action and institute such proceedings as the Vendor may reasonably request in relation to the tax matter. Significantly to my mind, paragraph 4.1 provides that the obligation of the Purchaser to give the notice (as soon as reasonably practicable and at latest within thirty days) “shall not be a condition precedent to the liability of the Vendor under this Agreement”. Since the subsequent sub-paragraphs presuppose that the Vendor has been made aware of the claim, and the notice is not a pre-condition of liability, it is unlikely that compliance with the later

Thirdly, paragraph 4.3 is subject to the qualification that the Vendor’s request must be “reasonable”. That leaves large scope for bona fide disagreement which can ultimately only be resolved by a court at a later date. Yet in the meantime the Purchaser would, on TUK’s case, be at risk of forfeiting its entitlement if its honest assessment was later judged to be objectively incorrect. In the absence of clear wording, I do not consider that the parties can be taken to have intended that result.

Fourthly, paragraph 2 of Schedule 5, headed “Restrictions on Covenant in Paragraph 1", lists a number of situations in which “the Covenant given in paragraph 1 shall not apply and the Vendor shall be under no liability in respect of Tax”. The contrasting absence of any words to similar effect in paragraph 4 is in my view significant.

These elements - all pointing in the same direction - lead me to conclude that breach of paragraph 4.3 does not discharge the Vendor from its payment obligation under paragraph 1 of schedule 5.

That leaves it open to the Vendor to claim (and set off) damages for breach of paragraph 4.3, if it can demonstrate that the breach caused it loss. In the present case, this would require a view to be formed as to the reaction of the Revenue if, as requested by the letter of 14 November 2006, PPC had relayed the Farr report to the Revenue. TUK’s case is that the Revenue would have accepted the Farr valuation, with a corresponding reduction in the liability to tax (which would have been eliminated by group tax losses) and claim under Schedule 5. PPC ripostes that the Revenue is unlikely to have opted for a course which would have resulted in repayment of a substantial sum of tax.

This alternative claim by TUK did not feature in the pleadings, or indeed at all until it arose in the course of closing submissions. Though I did not understand counsel for PPC to raise any objection on this ground, the failure to address the point from the outset raised serious difficulties, in that the court was provided with scant, if any, evidence relating to this question. In particular, there was no evidence adduced by either party as to the practice of the Revenue where a tax-payer seeks to re-open a closed and agreed return, let alone in any situation analogous to that which I am asked to consider, or as to the approach of the District Valuer to a valuation in these circumstances, if the matter was referred to him.

One can perhaps proceed a short way before the sands of impermissible speculation preclude further progress. In PPC’s tax return it had stated that, because the transaction had been between connected parties the actual sale proceeds of £63,226 had been “substituted with the directors estimated market value of £2,123,855.” That figure had been reached by

Both valuations sought to take into account the perceived strength or weakness of the tenant covenant and the state of repair, in so far as that might become relevant through the perceived value of the covenant. (Unhelpfully, however, for any reader trying to compare the two, Mr Farr’s critique was addressed to DTZ’s earlier valuation and report of September 2003, which had not addressed these factors.) Mr Farr sat at an extreme end of pessimism in his assessment of the tenant covenant and valuation on the basis of vacant possession. That crucial difference from the valuation which had been used for the tax return was essentially one of opinion or judgment rather than demonstrable fact. In these circumstances, there was no apparent reason why the Revenue should - as counsel for TUK submitted was overwhelmingly likely - have chosen to depart from the status quo by preferring Mr Farr’s much lower valuation to that on which the directors had acted in stating their estimate of market value in the tax return. At all events, I do not consider that I can properly so conclude without appropriate evidence as to the approach likely to have been adopted by the Revenue to such a case.

In the circumstances, I can do no more than rule that TUK has failed to discharge the onus of establishing that breach of paragraph 4.3 made any difference and caused it any loss.

The question of quantum - and in particular the application of the approach approved in Browning v Messrs Brachers, [2005] EWCA Civ 753 at paragraphs 204 to 212 - does not therefore arise.

I therefore determine that WSIL is entitled to payment by TUK of the tax
paid by PPC by reason of the earlier disposal of the shares in YMS-1 in so
far as it was based on a value in excess of the stated purchase price of
£63,225.72. The amount of that entitlement is still subject to a dispute
arising out of the use of group tax losses, and I will hear counsel on the
appropriate form of order.

In the third action PPC claims from TUK reimbursement of sums totalling £178,790 in respect of professional fees paid to its solicitors and accountants.

These fees were said to have been charged for information and assistance in relation to TUK’s arguments as to the tax liability arising from the YMS-1 disposal and the obligation of PPC to make mitigating submissions to the Revenue.

However, PPC produced no invoices in support of the claim, nor did it adduce any oral or other evidence to establish that the whole or any part of the sums claimed was in respect of work on these purposes. PPC therefore failed to prove two essential elements of its claim, which must accordingly fail.

In these circumstances, I do not propose to prolong this judgment with detailed discussion and analysis of the grounds on which it is suggested that PPC was entitled to reimbursement and can state my findings and conclusions very briefly.

Firstly, it was alleged that in discussion with Mr Price during a telephone conference call on 1 November 2004, Mr Moore agreed on behalf of TUK that the latter would reimburse all past and future costs incurred by PPC in considering TUK’s argument on the tax return. Other participants in the call were Mr Clarke, Mr Portnoy and his assistant Mrs Hiney of Deloittes (TUK’s accountancy advisers) and Mr Whiteley, TUK’s company secretary. The alleged agreement was said to have been confirmed at a lunchtime meeting on 19 November 2004 between Mr Price and Mr Moore.

PPC was, of course, entitled by the terms of paragraph 4.3 of Schedule 5 of the SPA to be indemnified against the costs of making any submissions requested by TUK. Given that it was unnecessary for Mr Moore to enter into any greater commitment, it is inherently improbable that he would have done so. Moreover, having heard evidence at some length from all the participants - of whom Mr Portnoy and Mrs Hiney were particularly impressive and convincing witnesses - I am clear that Mr Moore gave no such undertaking and did not go beyond saying that, if (which never happened) PPC put in the tax return at £63,226, TUK would at its own expense authorise Deloittes, TUK’s accountants, to defend that figure (if queried) to the Revenue.

Alternatively, in relation to costs incurred after 16 August 2006, PPC sought to found on the express indemnity in the letter of 16 August 2006. This submission blithely ignored the fact that the indemnity was stated to be in consideration of PPC making the requested submissions to the Revenue and for all the costs, expenses and liabilities incurred as a consequence of doing so. PPC’s failure to accede to TUK’s request, even

PPC’s submitted in the alternative that the monies were recoverable under
an implied indemnity. It is sufficient for me to say that it advanced no
legally intelligible basis for any such implication.

I will therefore dismiss PPC’s claim in the third action.