Analysis
The appellant, formerly known as Blackpool Football Club (Properties) Ltd, was the majority shareholder in Blackpool Football Club Ltd (BFCL) (which operated the football club business) and was the owner of other assets including the football stadium at which games were played (the footballing assets). A dispute broke out between the appellant and its owner and controller, Mr Oyston, on the one hand and VB Football Assets (VB), which was a minority shareholder in BFCL, on the other hand. This led to an unfair prejudice petition being issued and VB succeeded in obtaining a buy-out order from Marcus Smith J for its shares in BFCL to be bought by the appellant and Mr Oyston at a price of £31.27m.
In the event, the appellant and Mr Oyston paid less than a third of the amount due. VB eventually applied for the appointment of the respondents as receivers by way of equitable execution over various categories of assets owned by Mr Oyston and over the assets of the appellant itself including, in particular, the footballing assets. Marcus Smith J, noting that the jurisdiction to appoint receivers by way of equitable execution would only be exercised where there was some hinderance or difficulty with execution at law, relied on evidence on behalf of VB to the effect that the receivers had been approached because they had significant experience of football receiverships and that it was their intention, if appointed, to sell the footballing assets as a single package and as a going concern, rather than separate assets, because they believed that this would maximise the sale value. On 13 February 2019 he made the order but included a provision that Mr Oyston’s shares in the appellant should only be sold by the respondents on terms subject to the further approval of the court, following an agreement in principle with a proposed purchaser, and required Mr Oyston to file any evidence in opposition to such application prior to the hearing.
On 10 May 2019 the respondents applied to the court for an order sanctioning the sale of the footballing assets together with VB’s shares in BFCL as part of one transaction. The preferred buyer was Mr Sadler, a lifelong supporter of the football club who wished to see it continue to play football at the stadium, and evidence was served of his offer of £8.2m for the footballing assets and VB’s shares in BFCL. In his evidence, Mr Oyston appeared to accept the necessity of selling the shares in BFCL but reserved his rights in relation to the marketing and valuation of the proposed sale. The respondents’ solicitors responded to the effect that, if he objected, he should explain the basis of such objection and should clarify his position in relation to the relief sought. Mr Oyston did not respond to that request.
At the hearing it was noted that the court’s function, where there was no surrender of discretion, was limited and reference was made by way of analogy to a judgment of Snowden J in Re Nortel Networks UK Ltd [2016] and a passage from Lewin on Trusts approved by David Richards J in Re MF Global UK Ltd (No. 5) [2014]. Marcus Smith J, in an ex tempore judgment on 5 June 2019, held that the respondents had been entitled to bring the matter to the court because the proposed sale to Mr Sadler was a momentous decision, one that was enormously important for Mr Oyston who had been given every opportunity to make points in relation to the proposed sale, and that it was inappropriate for him to reserve his rights. He noted that a degree of immunity follows if a court sanctions a particular transaction but that was not a question for him to decide. In accordance with the criteria laid down in Re Nortel, he limited his decision to the questions whether:
- (a) the proposed sale was lawful within the receivers’ powers;
- (b) the receivers had acted as ordinary, prudent and reasonable receivers;
- (c) without seeking to second guess the receivers, the proposed sale was a proper transaction in all the circumstances; and
- (d) the receivers genuinely held the view that the transaction was a proper one which should be entered into.
He answered those questions in the affirmative and approved the decision of the respondents to sell the footballing assets and VB shares in BFCL to Mr Sadler (the sanction order).
The sale was completed on 13 June 2019 and a confidential settlement as to the sum outstanding was reached between VB on the one hand and the appellant and Mr Oyston on the other hand on 16 December 2019. A day later Marcus Smith J discharged the receivership order and granted the respondents a release from all claims arising in relation to their receivership, unless such a claim be commenced by 31 January 2020. The appellant did indeed issue a negligence claim against the respondents asserting that they had breached their duties of care and had sold the footballing assets at an undervalue. The respondents applied to strike out the claim on the bases:
- (a) that by reason of the sanction order they had received immunity from any claim against them for wrongly selling the footballing assets as a single package of assets in a single transaction;
- (b) that the appellant was subject to an issue estoppel preventing it from bringing any such claim on the basis of res judicata;
- (c) if not subject to an issue estoppel, that the claim was nevertheless an abuse of process of the type identified in Henderson v Henderson [1843] because the appellant could and should have raised its points against the sale at the hearing before Marcus Smith J; and
- (d) that the claim that the real property assets could have been sold for more if they had been sold separately from the sale of the shares had no real prospect of success on the merits.
In his judgment, striking out the negligence claim, Fancourt J expressed the view that, on the immunity ground, there was nothing in the authorities dealing with trustee applications to suggest that, where a claim might otherwise be brought for breach of trust, this was limited to claims for breach of fiduciary duty or could not extend to claims for breach of common law or statutory duty of care (citing the decision of Snowden J in Re Nortel). He concluded that since Marcus Smith J had approved the sale to Mr Sadler, the respondents had immunity from a claim that they should have sold the assets in a different way. Dealing with the other bases in the application, he found that res judicata did not apply because the same issue had not previously been decided between the same parties or their privies but, if he had reached a different decision on the immunity ground, he would nevertheless have struck out the claim as abuse of process of the type identified in Henderson and, if he had been wrong on that ground, he would nevertheless have struck out the claim as having no reasonable prospect of success. The appellant appealed.
Held (dismissing the appeal):
None of the previous authorities involved a subsequent claim against a trustee or office holder in respect of an earlier transaction that had been approved by the court and therefore there was no case that directly addressed the precise extent of the immunity conferred by an approval decision. Although Marcus Smith J expressly declined to consider the issue of immunity before making the sanction order, the judge hearing the application to strike out the negligence claim expressed the view that he could not imagine that Snowden J in Re Nortel believed that any immunity for the administration in that case would be limited to claims for breach of fiduciary duty only, and would not also extend to claims by creditors alleging that the compromise in that case was a negligent breach of their common law duty to obtain the best price reasonably obtainable. That was incorrect. Snowden J, who was hearing the appeal, did not consider that in Re Nortel he was being asked to satisfy himself on the facts that no better deal might have been possible or that the administrators had discharged their common law duty of care. Instead, he considered his role was to conduct the more limited review of the case on the basis of the passage from Lewin on Trusts approved by David Richards J in Re MF Global UK Ltd (No 5): namely to concern himself with limits of rationality and honesty, and not to refuse approval because he might have taken a different decision (ie not to ‘second guess’ the administrators).
As a matter of principle, there was no separate doctrine in English law called ‘immunity’; the notion of ‘immunity’ was a concept within the doctrines of res judicata and abuse of process. Lord Sumption in Virgin Atlantic Airways v Zodiac Seats UK [2014] described res judicata as a portmanteau term for a number of principles based upon an underlying policy against abusive proceedings. Of the two potentially relevant categories which he had described, issue estoppel referred to an issue common to two actions which had been decided on the earlier occasion and was binding on the parties in subsequent proceedings between the same parties, and abuse of process was the principle first identified by Wigram V-C in Henderson which precluded a party from raising in subsequent proceedings matters which were not, but could and should have been raised, in the earlier ones. Whereas issue estoppel was a substantive legal principle, abuse of process of the type identified in Henderson was procedural to prevent abusive litigation. Whatever the precise boundaries or overlap of these principles, it was apparent that in each category the focus was on the issues that were determined (or which could and should have been raised for determination) by the first court. Properly understood, the concept of ‘immunity’ flowing from an approval decision was judicial shorthand for a bar on subsequent proceedings that result from an issue estoppel. The essence of the point was that if the judge hearing the approval application determines a particular issue as a step in deciding to give their approval, that will operate as a bar to a party or a privy seeking to relitigate the same issue in subsequent proceedings. In short, there was no blanket or automatic rule about the scope of immunity for office holders; the scope of any immunity depends on precisely what the court decides.
In the instant case, Marcus Smith J limited his review of the respondents’ decision, faithfully reflecting the principles derived from cases such as Re Nortel Network UK Ltd and Re MF Global UK Ltd (No. 5), neither of which involved any question of breach of a duty of care. His findings did not suggest that he had conducted the type of enquiry that would have been necessary to satisfy himself that the respondents had in every respect exercised all necessary skill and care, and it was notable that he did not describe the agreed price as the best price reasonably obtainable for the footballing assets. While there was some force in the submission that he had not therefore decided the issue, there were powerful competing submissions, but it was not necessary to choose between them in order to dispose of the appeal. Even if the decision of Marcus Smith J in making the sanction order did not give rise to an issue estoppel, there was no doubt that the judge had been correct to find, for the reasons that he gave, that it was abuse of process of the type identified in Henderson for the appellant to bring the claim, having been given the clearest possible opportunity and having failed to raise before Marcus Smith J what was now the only pleaded basis for its claim. Furthermore, the judge was right to conclude that it would be manifestly unjust to the respondents and a misuse of the court’s resources for the appellant now to pursue them with the allegation that they should have sought to sell the real property assets separately from the remainder of the footballing assets. It followed, therefore, that the appellant was prevented from raising that issue in the claim on the basis of an abuse of process of the type identified in Henderson.
Obiter: although a court hearing an approval application was not required to decide in advance precisely what immunity will flow from a decision to approve the transaction, it would be a helpful exercise to identify as clearly as possible the issues which the court is deciding and following that through by identifying specifically the types of claim that would or would not be barred.
JUDGMENT LORD JUSTICE SNOWDEN: [1] This is an appeal against a decision of Fancourt J (‘the Judge’), striking out a negligence claim (‘the Claim’) by the Appellant (‘Denaxe’) against the Respondents (‘the Receivers’): [2022] EWHC 764 (Ch), [2022] 4 WLR 52. The appeal concerns the extent of immunity from subsequent claims which is enjoyed by …Continue reading "Denaxe Ltd v Cooper & anr [2023] WTLR 1279"