Home Information Cases Progress Property Co Ltd v Cornus Moore (2008)

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Progress Property Co Ltd v Cornus Moore (2008)

Summary

A company director had not been in breach of his fiduciary duty or his duty of skill and care in procuring the sale of shares in a group company and approving the price where he had intended the transaction to be at market value and the shareholders of the vendor company had assented to the transaction.

Facts

The court was required to determine claims in three actions arising out of a share purchase agreement by which a company (T) agreed to sell its majority shareholding in one of its group of companies (P) to another company (W). It had been a term of the agreement that before completion T should procure the transfer by P to one of T's subsidiaries (M) the entire issued share capital in one of P's subsidiaries (Y). The price for the transfer of Y's shares was expressed to be market value and was approved by one of P's directors (CP), who was also the sole shareholder in W and held the remaining shares in P, and by a director of M (CM) who was also a director of T. In addition, it was a term of the agreement that T would indemnify W for an amount equal to any liability of P or its subsidiaries to pay tax incurred by reason of any event occurring before completion and give such assistance as might reasonably be required in relation to a tax claim. After the transactions had been completed P alleged that Y's shares had been transferred at a considerable undervalue and sought the return of the shares from M, alternatively damages or compensation from M or CM. In the first action P submitted that CM had breached his fiduciary duty because the sale at an undervalue constituted an unlawful distribution of M's assets to a shareholder and was therefore ultra vires, and because there was a conflict of interest between his directorships. P also submitted that CM had breached his duty of care to P in bringing about a transaction at less than market value, and it had been unreasonable for CM to believe that the price paid for Y's shares was market value. In the second action W submitted that under the terms of the indemnity it was entitled to recover tax paid by P by reason of the disposal of Y. T argued that P had failed to comply with a reasonable request to supply valuation evidence to the Revenue that would have resulted in a reduced tax liability and that as a result P was prevented from relying on the indemnity. In the third action P submitted that T had agreed to reimburse professional fees paid by P for information and assistance in relation to the tax liability arising from the share disposal and P's obligation to make submissions to the Revenue.

Held

The transfer of M's shares had not been ultra vires because CM had known and intended the transaction to be at market value, Aveling Barford Ltd v Perion Ltd (1989) 5 BCC 677 Ch D applied. P's shareholders, namely CP and T, had been well aware of CM's position in the group of companies and that the sale was to one of T's subsidiaries but had accepted without complaint his role in the negotiation and conclusion of the transaction. There was no evidence that CM had intentionally acted in breach of fiduciary duty, Bristol & West Building Society v Mothew (t/a Stapley & Co) (1998) Ch 1 CA (Civ Div) considered. Both of P's shareholders had assented to the transaction, so no claim for breach of duty could lie against CM for having procured it, Duomatic Ltd, Re (1969) 2 Ch 365 Ch D applied. The first action was dismissed. (2) P had been under an obligation to make the requested submissions to the Revenue. On the construction of the indemnity, breach of the obligation did not discharge T from liability but T had failed to show that the Revenue would have reduced the tax liability if P had supplied the valuation evidence, and so any breach of the indemnity had caused no loss. W was entitled to payment by T of the tax paid by P as a result of the disposal of Y's shares. (3) P had produced no invoices in support of its claim for reimbursement of professional fees, or any oral or other evidence to establish that the sums claimed were in respect of the relevant work. It was also inherently improbable that T would have agreed any greater commitment for costs than that contained in the share sale agreement. P's claim in the third action was dismissed.

Judgment accordingly

Chancery Division
David Donaldson QC
Judgment date
15 October 2008
References

​LTL 22/10/2008; [2008] EWHC 2577 (Ch)