Receivers immune from negligence claims due to court approval of sale?

Overview

This case considers the extent of immunity from subsequent claims (such as claims for negligence) enjoyed by receivers who obtain the approval of the court for a sale of assets over which they have been appointed.

Background

The Receivership

Denaxe was formerly known as Blackpool Football Club (Properties) Limited. It was the owner of about 76.3% of the shares in Blackpool Football Club Limited ("BFCL"), which operated the Blackpool football club business (the “Club"). About 20% of the shares in BFCL were owned by VB Football Assets ("VB") and the remaining about 3.7% were owned by individual supporters of the Club.

Denaxe also owned the football stadium at Bloomfield Road, Blackpool (the “Stadium") at which the Club played its home games, the training ground used by the Club, some residential properties near the Stadium and shares in a subsidiary company which ran a hotel located in one of the stands at the Stadium. These assets are referred to collectively as the “Footballing Assets".

Following a season of increased revenues in the Premier League in 2010–2011, a dispute broke out between Denaxe (BFCL’s majority shareholder) and its owner and controller Mr. Owen Oyston on the one hand, and VB (BFCL’s minority shareholder), on the other. VB ultimately succeeded in obtaining an order (the "Buy-Out Order") for its shares in BFCL to be bought by Denaxe and Mr. Oyston at a price of £31.27 million.

Denaxe and Mr. Oyston paid less than a third of the amount due under the Buy-Out Order. On 13 February 2019, Marcus Smith J appointed receivers by way of equitable execution over Mr. Oyston's shares in Denaxe and Denaxe's Footballing Assets.

After their appointment, the Receivers used their powers over the shares in Denaxe to replace the existing board of directors of Denaxe and BFCL, thereby excluding Mr. Oyston from the management of the companies and the Club. The Receivers also instructed Lambert Smith Hampton (“LSH”) and Hilco with a view to the marketing of the Footballing Assets. The marketing process for the sale of the Footballing Assets formally started on 9 April 2019.

A number of expressions of interest and offers were received, but a problem emerged. Although Denaxe and Mr. Oyston had not paid the balance of amount due to VB under the Buy-Out Order, the possibility remained that they could do so, and so acquire VB's 20% of the shares in BFCL. The Receivers were told by several interested parties that any prospective buyer would insist on acquiring as close to 100% of the Club as possible, and would not agree to ending up with Mr. Oyston or anyone associated with him as a minority shareholder in BFCL.

The Sanction Application

Accordingly, on 10 May 2019 the Receivers issued an application (the "Sanction Application") to the court for an order that they might sell the Footballing Assets together with VB's minority stake in BFCL as part of one transaction. The Receivers' evidence in support of the Application included evidence to the effect that LSH had valued the various income streams from the Stadium (i.e. the football operations, the office space and the hotel), together with the training ground and residential properties, at a total of £12.6 million.

This capital value was stated to have been arrived at on the basis of a number of assumptions, the main one of which was that the Club would remain in occupation and take a lease of the Stadium at a rent of about £275,000 per annum. The report noted that the problem with this assumption was that even with the receipt of rent from the offices at the Stadium, the Club was loss-making and could not afford to pay such a rent. However, the report also stated that it was unlikely that the Stadium could be used by any other football club, so that there was no market for sale of the Stadium as such without the on-going operations of the Club. The result was said to be that if the assets were sold on a stand-alone basis, the Club would be deprived of a venue to play football and its major source of income, destroying the value of the shares in BFCL, and the only realisable value of the Stadium would be as its underlying land for redevelopment.

On 22 May 2019 the Receivers served further evidence in support of the Sanction Application outlining the marketing which had been conducted and the state of the bids. The preferred buyer was Mr. Simon Sadler, a lifelong supporter of the Club who wished to see it continue to play football at the Stadium, who had made an offer of £8.2 million for the Footballing Assets and the shares in BFCL owned by VB. The terms of Mr. Sadler’s offer included a condition that court approval of the sale be obtained, such approval to include the sale of a list of specified assets, including, in particular, Denaxe's and VB's 96.3% of the shares in BFCL, the shares in the company which operated the hotel, and the remainder of the Footballing Assets such as the Stadium and the training ground.

Mr. Oyston did not oppose the Sanction Application, and took the position that the Receivers did not need a direction from the court to sell the shares in BFCL and the other Footballing Assets because their power to do was plainly covered by the Receivership Order. He submitted that such sales were a matter for the commercial judgment of the Receivers and not the court, and that, "… if the Receivers want what is, in effect, protection against any allegation of professional negligence, it behoves them to say so clearly so that those concerned may file evidence accordingly."

The Approval of the Transaction

Mr. Justice Marcus Smith ultimately approved the transaction, finding that the price had been obtained after a competitive process, the price was reasonable and the best bid. Throughout his decision, he referred to the Footballing Assets as "the Club", "because that is the reality of the matter". He also referred to the views of the Receivers that a better price could be obtained by selling the Footballing Assets together with VB's shares in BFCL so as to preserve the business of the Club as a going concern rather that separately in an asset sale.

After quoting from Re Nortel Networks UK Limited [2016] EWHC 2769 (Ch), Marcus Smith J held that the Receivers had been entitled to bring the matter to the court, regarding the sale of the Club as a "matter requiring court scrutiny", and calling the decision of whether, and on what terms, to sell the club "a momentous decision, one that is enormously important for by Mr. Oyston and VB". Importantly, Marcus Smith J found that the question of the degree of a trustee or administrator’s immunity if the court sanctions a particular transaction was not before him.

The sale of the Footballing Assets and VB's shares in BFCL to Mr. Sadler was duly completed on 13 June 2019. Later, at a hearing on 17 December 2019, Marcus Smith J discharged the Receivership Order and Mr. Oyston was restored to control of Denaxe. Marcus Smith J also granted a release to the Receivers from all claims arising out of or in connection with the receivership, unless such a claim was commenced by 31 January 2020.

The Decision Below

The Parties’ Arguments

On 30 January 2020, Denaxe issued a claim against the Receivers asserting that they had breached their duties of care and had sold the Footballing Assets at an undervalue. The crux of Denaxe’s argument was that the Receivers should have sought to sell the property assets separately from the remainder of the Footballing Assets.

The Receivers applied to strike out the claim or for summary judgment on a number of bases, including that, by reason of the Sanction Order, the Receivers had immunity from any claim against them based upon an allegation that the Footballing Assets were wrongly sold as a single package of assets in a single transaction.

Denaxe contended that the Receivers did not enjoy this immunity, arguing that the immunity referred to in cases such as The Public Trustee v Cooper [2001] WTLR 901 and Re MF Global UK Limited (No.5) [2014] EWHC 2222 (Ch) was limited to immunity from claims alleging that a fiduciary had acted in excess of his powers or had improperly exercised a fiduciary power, and did not extend to claims of breach of a common law duty to exercise reasonable skill and care.

The Receivers also took the position that Denaxe was subject to an issue estoppel preventing it from bringing any such claim on the basis of res judicata and, if not subject to an issue estoppel, that the claim was an abuse of process of the type identified in Henderson v Henderson (1843) 3 Hare 100, because Denaxe could and should have raised its arguments against the sale at the hearing before Marcus Smith J, such that it was an abuse to seek to do so now.

Denaxe denied that the issue was subject to issue estoppel or that the claim was an abuse of process on the basis that the hearing of the Sanction Application had not been the occasion upon which to investigate the question of negligence in the decision to sell the Footballing Assets together.

The Court’s Findings

With respect to the immunity argument, Mr. Justice Fancourt expressed the view that there was nothing in the authorities to suggest that immunity was limited to claims for breach of fiduciary duty or that it could not extend to claims for breach of a common law or statutory duty of care.

Mr. Justice Fancourt further held that the immunity conferred on an administrator or receiver will extend to a claim that the office-holder failed properly to consider the matter, or failed to have regard to all relevant considerations, or was wrongly influenced by an irrelevant or inappropriate consideration, or that the decision approved was an irrational decision. The judge also stated that the immunity necessarily extends to a claim that the office-holder wrongly did not enter into a different transaction, or that they were wrong to sell at all.

Mr. Justice Fancourt held that even if he had reached a different decision on the immunity ground, he would nonetheless have struck the claim out as a Henderson v Henderson abuse of process. Any objection on the basis of misjudged marketing and packaging of the assets, or price, could and should have been raised before Marcus Smith J because it would go directly to the propriety of the decision made by the Receivers in the exercise of their powers, which was the very question that the court was being asked to approve.

Mr. Justice Fancourt found that issue estoppel did not apply, since the exercise for the court in determining an application such as the Sanction Application was different from evaluating after the event whether there was such a breach of a duty of care.

The Court of Appeal’s Decision

The Parties’ Arguments

Denaxe appealed. On the immunity ground, Denaxe contended that the jurisdiction of the court to give its approval to transactions originated in cases where trustees sought confirmation that their proposed actions were within the scope of their fiduciary powers. On any such approval application, the issues that the court should be prepared to decide, and any resultant immunity from suit, were strictly limited. In particular, given the equitable nature of the duties of trustees, the court's function on an approval application did not extend to consideration of whether a trustee was acting in accordance with a common law duty to exercise due skill and care to obtain the best price reasonably obtainable for the sale of assets. The same limitation should apply to an application for approval by court-appointed receivers.

On the abuse of process ground, Denaxe contended that that the hearing before Marcus Smith J was limited to questions of the propriety of the exercise of the Receivers' powers as a matter of equity, and that Mr. Oyston had been entitled to reserve his position on the different question of whether the Receivers had complied with their common law duty of care.

The Court’s Findings

Lord Justice Snowden, writing for the Court of Appeal, began his analysis by considering the authorities on approval applications and immunity, including the Public Trustee v Cooper and Re MF Global referenced above, as well as Re Nortel Networks UK Limited [2016] EWHC 2769 (Ch). Interestingly, Lord Justice Snowden who was also the judge on the Nortel case cited by Mr. Justice Fancourt in the decision below found, that Mr. Justice Fancourt’s view of what he decided in Nortel was not correct. Specifically, Lord Justice Snowden did not agree with the way in which the Judge framed his analysis of immunity at certain paragraphs of the Judgment, which depended on the proposition that if the court approved a specific transaction with a specific third party at a specific price, that necessarily conferred a wide immunity in respect of all subsequent claims.

Lord Justice Snowden also disagreed with Denaxe that, for the purposes of immunity, there was a conceptual distinction between claims alleging breach of a fiduciary duty and breach of a common law or statutory duty of care. Instead, the question of immunity depends upon a comparison of issues determined (or which could and should have been determined) in the earlier proceedings and those raised in the subsequent claim, not the precise juridical origins (i.e. common law or equity) of the applicant's duties or the subsequent cause of action.

In determining whether there was “immunity”, Lord Justice Snowden stated that the focus must first be on identifying the issues that were decided by Marcus Smith J, and then asking whether any of the same issues was a necessary ingredient of the claim that Denaxe was now making. In that regard, it was clear that Marcus Smith J was not required to "second-guess" the Receivers' decision but simply to check, "viewed from a certain distance", that it was a proper decision. It did not appear that Marcus Smith J had conducted the type of inquiry that would have been necessary to satisfy himself that the Receivers had in every respect exercised all necessary skill and care, and it is notable that he did not describe the agreed price as the best price reasonably obtainable for the Footballing Assets.

Accordingly, there was some force in the submission that Marcus Smith J did not expressly decide the issue of whether the Receivers had exercised all due skill and care to ensure that the best price would be obtained in the receivership by deciding to sell the Footballing Assets together in a composite transaction.

Ultimately, however, Lord Justice Snowden found that even if the decision of Marcus Smith J and the Sanction Order did not give rise to an issue estoppel, the Judge was entirely correct to find, for the reasons that he gave, that it was a Henderson v Henderson abuse of process for Denaxe to bring the claim, having been given the clearest possible opportunity at the hearing of the Sanction Application to raise what is now the only pleaded basis for its claim, and not having done so.

The Sanction Application and Variation Application both depended upon a fundamental assumption, supported by evidence from the Receivers as to their opinion, that the Footballing Assets should be sold together in a composite transaction so as to preserve the Club in operation and thereby to maximise value for the assets sold.

The directors of Denaxe at the time did not object to the proposed sale, and as Marcus Smith J observed, the hearing of the Sanction Application had been fixed precisely in order to enable Mr. Oyston to raise any points that he wished to about the proposed sale. As such, it was plain that the hearing had been arranged in order that everyone who could claim to be interested in Denaxe, and who might be entitled to express a view on its behalf in relation to the proposed transaction, had the opportunity to do so.

In that regard, as pointed out by the Judge, Mr. Oyston and Denaxe were in possession of the valuations and were well aware of the financial state of the Club. The directors did not oppose the proposed sale, and Mr. Oyston chose to stay silent on the fundamental question of whether there should be a composite sale of the Footballing Assets, simply reserving his rights, very generally, on the questions of "marketing and value". The Judge was entirely justified in his conclusions that Mr. Oyston made a calculated decision, as a long-time supporter of the Club, not to advocate a separate sale of the Footballing Assets that would have resulted in the Club ceasing to operate. The Judge was also entitled to find that if Mr. Oyston had spoken up, a different course might have been adopted by the Receivers and by Marcus Smith J.

In these circumstances, the Judge was entirely right to conclude that Denaxe could with reasonable diligence and should in all the circumstances have raised at the hearing of the Sanction Application the central issue upon which its claim now depended, namely whether the Receivers should have sought to sell the property assets separately from the remainder of the Footballing Assets. The Judge was also right to conclude that it would be manifestly unjust to the Receivers and a misuse of the court's resources for Denaxe now to be able to pursue the Receivers with that allegation. Accordingly, Denaxe was prevented from raising the issue in the claim on the basis of Henderson v Henderson abuse of process.

Conclusion

For these reasons, the Court of Appeal found that that the Judge's decision to strike out the claim was correct, and dismissed the appeal.

Judges: Lady Justice Asplin, Lord Justice Snowden and Lady Justice Falk

Counsel: David Mohyuddin KC and Daniel Burton of Radcliffe Chambers (instructed by Beale & Co. Solicitors LLP) for the Respondents

Matthew Collings KC of Maitland Chambers and Gareth Darbyshire (instructed by FieldFisher LLP) for the Appellant