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Norman Barry Ellis & David Clayton v Property Leeds (UK) Limited (2002)

Summary

A shareholder could not sue where his pleaded losses were merely a reflection of the losses suffered by the company in which he had an interest.

Facts

Appeal in respect of two consolidated claims by the claimants ('E') for damages for alleged fraudulent and/or negligent misrepresentation by a servant or agent ('T') of the respondent company ('P'). Summary judgment under CPR Part 24 had been granted to P on the grounds that any losses of E were merely reflections of losses suffered by the various companies in which they had an interest and that, since E had suffered no separate and distinct losses, any claim that arose lay with the companies concerned and not with E. A company ('CLC') in which E had an interest and of which they were directors purchased a property development site from the receivers of the former owner, who owed some #4 million to the Leeds Permanent Building Society (as it then was) ('S'). CLC commissioned T to carry out a valuation, which was given as #4,705,000. CLC completed the purchase, with the assistance of a loan from S, secured by a first charge, a bank loan and further loans from other companies in the CLC group and secured by guarantees by those companies and personal guarantees from E. The venture failed, securities were called in and CLC and the other companies collapsed. E claimed that T's valuation was fraudulent as T himself had valued it for S a year before CLC's purchase at #2,750,000 and that by the time of CLC’s purchase it would have been valued at #2,500,000. E claimed that T and P were acting in the interests of S rather than those of CLC.

Held

The trial judge had been right in his decision. He had applied the rule in Foss v Harbottle (1843) 2 Hare 461 and the principles set out by Lord Millett in Johnson v Gore Wood & Co (a Firm) (2001) 2 WLR 72. E's losses had been merely reflections of the losses suffered by the respective companies. CLC had its own claims against P and against the other companies in the CLC group to which it lent money or gave guarantees. It was irrelevant that those other companies in the CLC group were insolvent and that a claim against them would be fruitless. As a matter of policy, a shareholder could not be allowed to sue where the company had a claim. It had to be left to the company to bring proceedings to recover its losses.
Appeal dismissed.

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Judgment
31 Jan 2002

Court of Appeal (Civil Division)
Peter Gibson LJ, Mantell LJ, Wall J

References
‚Äč[2002] EWCA Civ 32

Practice areas
Company, Partnerships & LLPs
Professional Negligence