Law reports

COMPANY

Meeting - insolvent company's directors also to consider interests of creditors - director voting in breach of fiduciary duty not counting towards quorum - resolution void

Colin Gwyer & Associates Ltd and Another v London Wharf (Limehouse) Ltd and Others: ChD (Leslie Kosmin QC): 13 December 2002

The tenants of three flats were also the three shareholders in the first defendant company, which was their landlord.

Each share-holder nominated one director to the landlord company's board.

The landlord brought forfeiture proceedings against the first claimant.

At a board meeting on 5 September 2001 the two directors present, (the second claimant, who was also a shareholder, and the appointee of the first claimant), passed a resolution to compromise the forfeiture proceedings, which were to be withdrawn with each side bearing its own costs.

The second and third defendants (the third tenant and its representative director) disputed the validity of the directors' meeting and/or the resolution it had passed.

The claimants brought proceedings for declarations as to the validity of the meeting and the resolution it passed pursuant to CPR part 8.

The second and third defendants brought proceedings under CPR part 20 against the claimants, the other director and the first defendant for contrary directions that the resolution was passed by the directors in breach of their fiduciary duties and therefore was void.

David Fisher (instructed by Beachcroft Wansbroughs) for the claimants.

Helen Galley (instructed by Triggs Wilkinson Mann) for the defendants.

Held, declaring that the meeting was validly convened but that the resolution was void, that directors owed fiduciary duties to the company itself, and not to any individual shareholders; that the court was not to substitute its judgment of what was in the best interests of the company for that of the directors, though it could test the directors' assertion that they were acting in what they thought were the best interests of the company (and not for a collateral purpose) in the light of the surrounding evidence; that when a company was on the brink of insolvency the directors owed a further duty to consider the position of the company's creditors; that both directors knew that the company was insolvent; that it was difficult to see how dropping the claim was in the best interests of the creditors when the company's lawyers had advised that the claim had a 70% chance of success; that one director had failed to show single-minded loyalty to the company because he had wilfully blinded himself to the interests of the company in so far as they conflicted with those of the shareholder who appointed him; that the other director was motivated by the interests of the company in the sense of its shareholders, but had failed to consider the position of the creditors; that these directors were in breach of fiduciary duty because their conduct was not what honest and intelligent directors would have considered as in the best interests of the company; and that as the first claimant was aware of the facts constituting the breaches of fiduciary duty, it could not rely on the presumed validity of the resolution.

CRIMINAL

Inordinate delay between grant of leave to appeal against conviction and sentence and final determination - breach of convention right - one year reduction in long sentence sufficient redress

R v Ashton and others: CA (Lord Justice Mantell, Mr Justice Treacy and Mr Justice Simon): 6 December 2002

The defendants were convicted in the Crown Court of conspiracy to murder and were sentenced variously to terms of imprisonment of 14 and 18 years.

Following the grant of leave to appeal against conviction and sentence, there was extensive delay before the appeals were heard.

The defendants contended, among other things, that they bore no responsibility for the delay and that in light of the resultant infringement of their entitlement to have their cases heard within a reasonable time they should be compensated after some fashion.

Gilbert Gray QC and Robin Kitching (assigned by the Registrar of Criminal Appeals) for the first defendant.

David Lane QC and Steven Johnson (assigned by the Registrar of Criminal Appeals) for the second defendant.

Michael Shorrock QC and Robin Denny (assigned by the Registrar of Criminal Appeals) for the third defendant.

Toby Hedworth QC and Caroline Goodwin (instructed by Crown Prosecution Service, Newcastle upon Tyne) for the Crown.

Held, allowing the appeals against sentence, that there had been inordinate delay between grant of leave to appeal and the hearing, for which the defendants were not to blame; that such delay constituted an infringement of the defendants' entitlement under article 6(1) of the Convention for the Protection of Human Rights and Fundamental Freedoms, and it was appropriate to consider some mode of redress; that, in the light of the approach adopted by the Privy Council in Mills v HM Advocate [2002] UKPC D2; [2002] 3 WLR 1597, a reduction of one year in each sentence was sufficient redress; but that the case was quite exceptional and it should not to be thought that any delay in listing, which might be the result of circumstances or conditions outside the control of the court or the prosecution, would necessarily lead to a similar result.

(WLR)

Sexual offences - sentences for rape - guidelines

R v Millberry; R v Morgan; R v Lackenby: CA (Lord Woolf Chief Justice, Lord Justice Rose and Mrs Justice Hallett): 9 December 2002

The three defendants, who had each pleaded guilty to rape, appealed against their sentences of five years, nine years and ten years respectively.

On the appeals the Court of Appeal considered an advice from the Sentencing Advisory Panel, proposing a revision of the sentencing guidelines for rape to take account of new legislation and changes in the nature of the offence since R v Billam [1986] 1 WLR 349.

Deborah Charles for Millberry, David Batcup for Morgan and David Callan for Lackenby (all assigned by Registrar of Criminal Appeals); Robin Johnson (instructed by Crown Prosecution Service, Headquarters) for the Crown.

Held, reducing the sentence in the first case to four years but dismissing the other appeals, that while rape would always be a most serious offence, its gravity would depend on the circumstances and it was always necessary to consider an individual case as a whole taking into account the degree of harm to the victim, the level of culpability of the offender and the level of risk posed by the offender to society; that the same sentencing guidelines should apply in principle to male and female rape, with factors relevant to only one gender (such as pregnancy resulting from the rape) taken into account on a case-by-case basis; that there was no inherent distinction for sentencing purposes between anal and vaginal rape; that where a victim was raped both vaginally and anally that would be treated as repeated rape; that the same starting point was appropriate in cases of relationship rape, acquaintance rape and stranger rape, with the sentence increased or reduced, in each case, by the presence of specific aggravating or mitigating factors; that after a contested trial a custodial sentence of five years was appropriate for a single offence of rape on an adult victim by a single offender manifesting none of the features which attracted a higher starting point; that an eight-year starting point was appropriate where: two or more offenders acted together, the offender was in a position of responsibility towards the victim or a person in whom the victim had placed trust by virtue of his office or employment, the offender abducted the victim and held the victim captive, the victim was a child or especially vulnerable, the offence was racially aggravated or the victim had been targeted because of the victim's membership of a vulnerable minority, there was repeated rape in the course of one attack, or the rapist was knowingly suffering from a life-threatening sexually transmissible disease; that factors reflecting a high level of risk to society, in particular evidence of repeat offending, would indicate a substantially longer sentence; that a starting point of 15 years was appropriate for a campaign of rape, including where the offender had repeatedly raped the same victim over a course of time; that a life sentence would not be inappropriate where the offender had manifested perverted or psychopathic tendencies or gross personality disorder and where the offender was likely, if at large, to remain a danger to potential victims for an indefinite time; that, while previous convictions for sexual or violent offences could be a significant aggravating factor, the defendant's good character, although not to be ignored, did not justify a substantial reduction of what would otherwise be the appropriate sentence; that in the case of young offenders custody would normally be the appropriate disposal but the sentence should be significantly shorter; and that aggravating factors included: use of violence over and above the force necessary to commit the rape, use of a weapon to frighten or injure the victim, planning, an especially serious physical or mental effect on the victim, further degradation of the victim, breaking into or otherwise gaining access to the place where the victim was living, the presence of children when the offence was committed, the covert use of a drug to overcome the victim's resistance and/or obliterate the victim's memory of the offence, or a history of sexual assaults or violence against the victim (WLR).

Statute conferring power to make order disqualifying defendant from working with children - not 'penalty' - power to make order in respect of offences committed before statute took effect

R v Field; R v Young: CA (Lord Justice Kay, Mr Justice Grigson and Mr Justice Ouseley): 12 December 2002

The defendants were convicted of offences of indecency and orders were made under section 28 of the Criminal Justice and Court Services Act 2000 disqualifying them from working with children indefinitely.

They respectively appealed and sought leave to appeal against the orders on the grounds that section 28 was not applicable because their offences had all been committed before the statute had come into effect.

Richard Bendall (assigned by Registrar of Criminal Appeals) for the first defendant.

Jonathan Crow (instructed by Treasury Solicitor), for the home secretary.

The second defendant did not appear and was not represented.

Held, dismissing the appeal and refusing the application for leave to appeal, that, since a conviction was not a necessary condition for the making of an order under section 28, the nature and purpose of which pointed overwhelmingly to its being for preventative rather than punitive purposes, and since the same order was made whether a person was convicted or not and the making of the order had no regard to the extent or seriousness of the offending but rather to whether a repetition of the conduct was likely, a disqualification order under section 28 of the 2000 Act was not a 'penalty' within the meaning of article 7 of the Convention for the Protection of Human Rights and Fundamental Freedoms; that article 7 therefore did not require the court to interpret section 28 so that it applied only to convictions for offences committed after section 28 had come into force; and that, on a true construction, section 28 applied whenever the offending behaviour had occurred.

DAMAGES

Fraudulent misrepresentation - sale of shares - damages equal to difference between price paid and actual value at date of purchase with no allowance for subsequent increase in share price

Great Future International Ltd and others v Sealand Housing Corpn (in liquidation) and others: ChD (Mr Justice Lightman): 3 December 2002

The claimant investment companies were induced by the defendants to buy shares in a company which was going to buy land in China to build housing and a golf course.

The defendants falsely represented to the claimants that a company controlled by the second defendant had advanced $41 million (25 million) to the company they were investing in, which had used that money to pay the first five instalments (out of seven) of the purchase price of the land.

For commercial reasons the claimants had retained their investment after learning of the fraud.

Mr Justice Lightman gave judgment for the claimants on liability and directed an inquiry as to damages.

It was agreed that the primary measure of damages was the difference between the value of the shares had the representations been true and the actual value of the shares.

The question of the date on which the shares should be valued was remitted to the judge.

Leslie Kosmin QC and James Potts (instructed by Eversheds) for the claimants.

Anthony Connerty (instructed by Magwells) for the defendants.

Held, that, when a person who had been fraudulently induced to buy property thereafter freely decided to retain it, the fair measure of his loss was the excess which he had paid over fair market value at the date of its acquisition, plus any consequential expenses; that the compensatory principle required that damages might be valued other than as at the date of the defendants' wrongdoing (here the closing date for the claimants' investment in the development) where it was more just to do so; that the defendants' ongoing non-payment of the instalments of the purchase price and default in respect of the paid-up investment had further depreciated the value of the subscription shares; that justice prevented the defendants from claiming any credit for any increase in the value of the shares arising out of the period in which they had concealed their fraud and harassed and delayed the claimants' efforts to enforce their rights in the courts to try to salvage their investment; that a valuation as at the date of the inquiry was impractical since it threw up intractable problems of causation; and that the claimants' duty to mitigate their loss did not oblige them to pay moneys to the vendors of the land in China, particularly in circumstances in which they did not yet control the company in which they were investing.

LAND

Vendor conveying land adjoined by road wholly owed by vendor - road not expressly referred to in conveyance - highway presumption applying where vendor of land owning entire width of adjoining road

Commission for New Towns and another v JJ Gallagher Ltd: ChD (Mr Justice Neuberger): 16 December 2002

A vendor conveyed a parcel of land to the first claimant's predecessor in title.

A road which adjoined the land and was wholly owed by the vendor was not expressly referred to in the conveyance.

The claimant brought an action in which he alleged that the road was included with the land expressly conveyed, either by virtue of the common law highway presumption or the presumption under section 62 of the Law of Property Act 1925 by which a conveyance was deemed to include all ways 'enjoyed with' or 'appurtenant to' the land.

Kim Lewison QC and Jonathan Karas (instructed by DLA) for the claimants.

John Randall QC and Conrad Rumney (instructed by the Wood Glaister Partnership, Solihull) for the defendant.

Held, giving judgment for the claimant, that where the vendor owned the entire width of an adjoining road the common law highway presumption applied so that the owner was deemed to have conveyed the whole of his interest in the road; that in the circumstances the presumption had not been rebutted; that the phrases 'enjoyed with' and 'appurtenant to' in section 62 of the 1925 Act referred to incorporeal hereditaments and not to physical property, such as roads; and that, accordingly, the highway presumption, but not section 62, resulted in the road being vested in the claimant.

PARTNERSHIP

Partner knowingly assisting in dishonest scheme - partner acting in ordinary course of firm's business even though acts outwith his authority - firm's liability for partner's wrongful acts or omissions extending to dishonest participation in breach of trust

Dubai Aluminium Co Ltd v Salaam and others: HL (Lord Slynn of Hadley, Lord Nicholls of Birkenhead, Lord Hutton, Lord Hobhouse of Woodborough and Lord Millett): 5 December 2002

The claimant was fraudulently induced to pay $50 million (31 million) under bogus consultancy agreements and sub-agreements (see [2002] Gazette, 12 December, 4).

The proceeds were shared out among the principal participants in the fraud, including S, who received $20.3 million, and T, who received $16.5 million.

The claimant brought an action against, among others S, T, the firm of solicitors acting for S, and A, the firm's senior partner who dealt with S's affairs, alleging that A had dishonestly assisted in the fraud by drafting the agreements and administering the fraudulent scheme and that his firm was vicariously liable for his acts.

A had not benefited from the fraud apart from comparatively modest amounts paid to his firm by way of fees, and his partners were personally innocent of any wrongdoing.

The defendants settled the claimant's claim, the firm agreeing to pay $10 million in respect of the claims against it and A, and the firm then brought contribution claims against S and T.

The judge ordered S and T to make contributions to the firm amounting to a full indemnity.

S and T appealed.

The Court of Appeal [2001] QB 113 allowed the appeal, on the grounds that since the firms' partners had not authorised A to act as he had on their behalf and it was not in the ordinary course of the business of a solicitors' firm to plan, draft and sign sham agreements giving effect to a scheme known to be dishonest, A had not acted in the ordinary course of the firm's business pursuant to section 10 of the Partnership Act 1890, so that the firm was not vicariously liable for A's acts and was therefore not entitled to claim contribution under section 1(1) of the Civil Liability (Contribution) Act 1978 in respect of the sum paid to the claimant.

The firm appealed; S and T cross-appealed.

Jonathan Sumption QC and Philip Brook Smith QC (instructed by Barlow Lyde & Gilbert) for the firm.

Ali Malek QC and Sara Cockerill (instructed by Pinsent Curtis Biddle) for T.

Mark Simpson and Spike Charlwood (instructed by Reid Minty) for S.

George Leggatt QC (instructed by CMS Cameron McKenna) for A.

Held, allowing the appeal and dismissing the cross-appeal, that 'any wrongful act' in section10 of the 1890 Act included the equitable wrong of dishonest participation in a breach of trust; that one partner's wrongful conduct, although not authorised by his partners, could have been done 'in the ordinary course of the business of the firm' if it were so closely connected with acts which he was authorised to do that, for the purpose of the firm's liability to third parties, there was a risk of the wrongful act occurring so that the firm was liable for the resulting loss; that whether it could be so regarded was for the court to evaluate as a question of law based on primary facts; that drafting agreements for a proper purpose would be within the ordinary course of the business of a solicitor's firm and, on the assumed factual basis that A was acting in his capacity as a partner, his assistance in the fraudulent scheme by drafting the necessary agreements was so closely connected with the acts which he was authorised to do that for the purpose of the firm's liability A could fairly and properly be regarded as having acted in the ordinary course of the firm's business; that that assistance, coupled with the dishonesty, were sufficient to give rise to equitable liability on A's part; and that, accordingly, the defendant firm was vicariously liable for A's conduct; that therefore the firm stood in the shoes of A and the personal innocence of A's partners was not relevant for the purposes of assessing liability to the claimant and in the contribution proceedings; but that the court could have regard to the extent to which some parties to the fraud but not others remained in possession of substantial proceeds of the fraud even after the claimant's claims had been met; and that, therefore, it was just and equitable that in accordance with their respective responsibilities for the damage to the claimant, S and T should bring into the assessment sums they had retained from the fraud, that the firm should receive a 100% contribution from them and that S and T should each bear the risk of the other's insolvency (WLR).

PRACTICE

Striking out - action for procuring breach of contract - contract arguably void - claimant entitled to seek pre-action disclosure - claim not to be struck out

Arsenal Football Club plc and others v Elite Sports Distribution Ltd: ChD (Geoffrey Vos QC): 10 December 2002

The claimants (the FA Premier League (the third defendant) and two member clubs) brought an action for damages and an injunction restraining the defendant from making use, in unauthorised calendars, of photographs of professional footballers which had not been licensed by the third defendant, on the basis that the defendant must have procured the photographers to breach a contract with the third claimant (under which the photographer was licensed to enter the grounds of football clubs to take photographs for limited purposes only), and/or had infringed the photographers' copyright thereby giving rise to an unlawful interference with the claimants' trade.

The defendant applied to strike out the claim on the basis that it disclosed no cause of action, had no prospect of success (because the contract between the third claimant and the photographers was void for contravening section 1 of the Competition Act 1998) and/or was so speculative as to be an abuse of the process of the court.

The claimants opposed the application, and the third claimant cross-applied for a Norwich Pharmacal order requiring the defendant to identify the sources from which it had obtained the photographs.

Cyril Kinsky (instructed by McCormicks, Leeds) for the third claimant; Iain Purvis (instructed by Gordons) for the defendant.

Held, allowing the defendant's application in part and ordering disclosure against the defendant under CPR 31.12, that a person other than the copyright holder was not entitled to bring a claim for interference with their economic interests arising out of the infringement of a copyright belonging to another, because to do so would be to frustrate the intention of Parliament that only a limited class of persons should be able to bring an action for the infringement of a copyright; and that that part of the particulars of claim had to be struck out; but that there were factual scenarios on which the allegation of procuring breaches of contract could be made out; that there was some evidence to support that claim in that the defendant probably was aware of the licence agreement between the third claimant and any photographers, and had declined to explain how it had come into possession of the photographs; that although it was arguable that the agreement between the third claimant and the photographers was void, that did not justify striking out the claim; that in any event, the claimants would have been free to seek pre-action disclosure; that the court would decline to strike out the particulars of claim but would grant the defendant liberty to apply again after disclosure had been completed; and that since disclosure could be ordered within the present action there was no need for a Norwich Pharmacal order.