Progress Property Co Ltd v Moore & Anor

A transaction involving a company and a shareholder is not necessarily an unlawful distribution merely because it transfers value without reference to distributable profits. The critical question is whether the transaction was intended to confer an improper benefit. A director’s position with potentially conflicting principals is not, without more, a breach of fiduciary duty where the relevant interests are known and accepted. All shareholders may assent to and waive a breach, including by informal assent evidenced at a board meeting. A contractual obligation to assist in resisting a tax claim will not ordinarily be a condition precedent to an indemnity where forfeiture would be disproportionate, the obligation is qualified by reasonableness, and the agreement contains no clear exclusion of liability.

Three related actions arose from the disposal by Progress Property Company Limited of its subsidiary, YMS Properties (No.1) Limited, to Foldfree Limited, a subsidiary of Tradegro (UK) Limited. The shares were transferred for £63,225.72. Progress alleged that the transfer was at a substantial undervalue and claimed against Cornus Moore and Moorgarth Group Limited for breach of fiduciary duty and duty of care.

A related claim concerned Tradegro’s tax indemnity under the share purchase agreement. Tradegro argued that Progress had failed to comply with an obligation to make reasonable submissions to the Revenue and thereby lost its entitlement. A third action sought reimbursement of professional fees. The court therefore considered the effect of shareholder assent, the conflict rule, the alleged undervalue, the contractual tax-assistance obligation, and proof of the fees claimed.

1. First action. The claim and Part 20 claim were dismissed. The alleged undervalue did not establish an unlawful distribution. Aveling Barford Ltd v Perion Ltd [1989] BCLC 626 concerned a sale known and intended to be at an undervalue for the purpose of enabling a related entity to realise a profit. It did not support the wider proposition that every shareholder transaction transferring value without reference to distributable profits is ultra vires.
2. Mr Moore’s dual directorships did not, without more, constitute a breach of fiduciary duty. The shareholders knew of his position and accepted his participation. A fiduciary acting for potentially conflicting principals must act in the interests of each and must not intentionally prefer one to the prejudice of the other. No such intentional conduct was proved: Kelly v Cooper [1993] AC 205; Bristol & West Building Society v Mothew [1998] Ch 1.
3. Both shareholders had assented to the transaction. Shareholders may waive a director’s breach by approval, and unanimous assent need not be given by formal resolution: Bamford v Bamford [1970] Ch 212; Re Duomatic Ltd [1969] 2 Ch 365. The assent remained effective even though Mr Price’s approval was expressed through a board meeting and even if he had misunderstood the minutes.
4. The court did not determine whether Mr Moore had breached his duty of care or what damages would have followed. The proper hypothetical question would have been what a competent director would have done to determine the price, rather than the objectively correct market value of the shares.
5. Second action. Progress was obliged to make the valuation submissions requested by Tradegro in November 2006. However, breach of that obligation did not discharge Tradegro’s liability under the tax indemnity. The agreement’s structure, the potentially disproportionate effect of forfeiture, the reasonableness qualification, and the absence of equivalent exclusionary wording showed that paragraph 4.3 was not a condition precedent or a term whose breach discharged the indemnity. Tradegro could claim damages only by proving loss. It failed to do so. Progress was entitled to payment of the tax covered by the indemnity, subject to the unresolved issue concerning group tax losses.
6. Third action. The claim for professional fees was dismissed. Progress produced no invoices or other evidence proving that the sums claimed related to recoverable work. No express or implied indemnity covering the wider costs was established.

First instance judgment in three related Chancery Division actions. The judgment itself records no prior appellate decision.