County Garage (Birmingham) Ltd & Anor v Manton & Ors

Windfall provisions forming a fundamental part of a wider family-business reorganisation create binding obligations between the parties. They are not confined to internal allocations under a company's articles and may survive a later reconstruction unless clearly varied. Enforceable rights arising under the articles may transfer with the relevant undertaking. Contractual restrictions on assignment do not prevent a transfer contemplated by the agreement itself, and may in any event be overcome by consent. In related proceedings tried together, the court has a wide discretion to make a global or proportional costs order, provided the result causes no injustice. An appellate court will be slow to interfere with a trial judge's assessment of the appropriate proportion after a lengthy, interrelated trial.

The dispute arose from a family-business reorganisation involving three brothers, their trusts and companies. A shareholders' agreement and amended articles provided for windfall profits from specified property sales to be shared between three family branches. A later reconstruction transferred two undertakings to companies controlled by two brothers, while the third brother and his wife became the sole shareholders of the holding company.

Following property sales, the judge held that the windfall provisions remained effective and ordered payments to the two brothers. He also made global indemnity costs orders. The third brother sought permission to appeal on construction, enforcement, assignment, rectification and costs. The Court of Appeal considered whether there was any realistic prospect of successfully challenging those conclusions.

The Court of Appeal refused permission to appeal. Lord Justice Moore-Bick gave the judgment, with Lord Justice Longmore agreeing.

1. Construction and survival of the windfall provisions. The shareholders' agreement, read with the amended articles and the parties' wider objective of achieving an equitable division of family assets, created binding obligations to share windfall gains. The reference to the articles incorporated their proportions and distribution machinery; it did not confine the benefit to internal allocations between shareholders or undertakings. Nothing in the later reconstruction agreement showed a conscious agreement to abandon or fundamentally vary that scheme.
2. Enforcement after reconstruction. The amended articles created enforceable obligations on the holding company, including rights to obtain a share of windfall profits. Those rights formed part of the relevant undertakings transferred to the two new companies. In addition, the original parties to the shareholders' agreement, including the trustees, were entitled to enforce the holding company's obligations. The court therefore found the judge's second and third bases sound, while finding the first basis doubtful and leaving the fourth unnecessary to decide.
3. Assignment. The assignment restriction did not defeat the arrangements. The parties had in fact approved the reconstruction, and the agreement itself contemplated a demerger involving transfers of rights. The restriction therefore did not apply to a transfer of that kind. It was unnecessary to consider rectification.
4. Costs. Under Civil Procedure Rules Rule 44.3(6) and (7), the court may make proportional or issues-based orders, but should make a proportional order instead where practicable. A single global order may be appropriate where related claims and counterclaims are managed and tried together, provided it reflects all the circumstances and does not cause injustice.
5. The relevant considerations included the multiplicity and interrelationship of the issues, success on particular issues, their significance, the time and costs spent on them, and the parties' conduct. The percentages awarded did not require actuarial justification. Given the trial judge's superior position and generous costs discretion, there was no realistic prospect of appellate interference.

Order: application refused.

• Court of Appeal (Civil Division) — On 14 September 2007, the renewed application for permission to appeal was refused: [2007] EWCA Civ 950.
• Birmingham Mercantile Court — HHJ McCahill QC held that the windfall provisions applied, ordered payments to Warren and Richard, and made global indemnity costs orders.