Cobden Investments Ltd. v RWM Langport Ltd & Ors, Court of Appeal - Chancery Division, November 20, 2008, [2008] EWHC 2810 (Ch)

Resolution Date:November 20, 2008
Issuing Organization:Chancery Division
Actores:Cobden Investments Ltd. v RWM Langport Ltd & Ors
 
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Neutral Citation Number: [2008] EWHC 2810 (Ch)

Case No: 10220 of 2008

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 20/11/2008

Before :

MR JUSTICE WARREN

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IN THE MATTER OF SOUTHERN COUNTIES FRESH FOODS LIMITED

AND IN THE MATTER OF THE COMPANIES ACT 1985

Between :

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Mr Bernard Weatherill QC & Mr Peter Griffiths (instructed by Messrs Rosenblatt) for the Petitioner

Mr Victor Joffe QC & Mr Timothy Collingwood (instructed by DLA Piper UK LLP) for the Respondents

Hearing dates: 27th,28th,29th February 2008, 3rd,4th,5th,6th,7th,10th,11th,12th,13th,18th,19th, March 2008, 8th,9th,10th,11th,14th,15th,16th,17th,18th,21st,22nd,23rd,24th, April 2008 and 7th,8th, 9th May 2008

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Judgment

Mr Justice Warren :

Introduction

  1. This is a petition under section 994 Companies Act 2006 in relation to the affairs of the second Respondent (``SCFF''). Although the petition is now in a re-amended form, I will simply refer to it as ``the Petition''. SCFF is a company which was incorporated on 14 August 1996 as a joint venture vehicle for the interests of the Cobden family and the Heffer family. The petitioner (``CIL'') owns 50% of the issued shares of SCFF; it is the vehicle through which the interests of the Cobden family are held. The other 50% is held by the first respondent (``RWM Langport'') a company within the RWM group of companies owned and controlled by the Heffer family. The holding company of the group is RWM Food Group Ltd (``RWM Group''). The third respondent (``RWM'') is another company within the RWM group which originally held that other 50%. CIL has power to appoint 3 directors of SCFF as does RWM Langport. Unless it is necessary to distinguish between the different RWM entities, I shall use ``RWM'' to include RWM Langport.

  2. Prior to the involvement of the Heffers in 1993, the Cobden family were the shareholders in JH Cobden Ltd ("JHC") which operated an abattoir in Langport, Somerset and, before that, an abattoir and boning hall in Martock, also in Somerset. The Langport abattoir is now owned and operated by SCFF.

  3. RWM has at all material times been, and is today, a meat processor and wholesaler, with significant supermarket customers. The processing aspect of its business involves the boning of cattle and sheep which have been slaughtered by third-party abattoirs.

  4. By 1993, JHC was experiencing trading difficulties. JHC and RWM became known to each other. RWM, which then carried on the major part of its business in Romford in Essex, where its boning facilities were becoming inadequate, saw an opportunity which would be of benefit to both companies. This was for RWM to move its boning business to the Langport site where a new boning hall could be built. JHC would be able to supply RWM with animals which it had slaughtered: it would have a guaranteed customer for a large amount of its throughput and would be able significantly to increase that throughput. RWM would have the benefit of a sure supply of meat with the convenience of that supply coming from the same site. Transport costs for the overall enterprise would be saved. These ideas were discussed and an agreement was reached.

  5. In July 1993 RWM acquired a 50% shareholding in JHC pursuant to a Share Sale Agreement dated 22 July 1993 (``the Share Sale Agreement''), and then on 21 August 1996 following a scheme of reconstruction under section 110 Insolvency Act 1986, SCFF took over JHC's business. Ever since, 50% of the shares have been held by CIL. The other 50% have been owned first by RWM and later by RWM Langport. Since then RWM has been, and still is, supplied with much of its beef requirements by SCFF. There has also been trading between SCFF and RWM Dorset Ltd ("RWM Dorset"), another subsidiary of RWM Group. RWM Dorset is a processor of and wholesaler dealer in lamb; it is supplied with live lambs by SCFF in circumstances which I will need to explain later.

  6. The principal objects for which the Company was established are

    ``to carry on business, both wholesale and retail, as dealers, distributors, suppliers, sellers ... or merchants of and in all or any of the following commodities, namely meat, cattle, pigs ... and other animals ... whether alive or dead or fresh ... and to carry on business as licensed slaughterhouse proprietors; as slaughterers of sheep and other animals; and dealers in hides and skins''.

  7. One of the issues for me is the extent to which it is possible to go outside the formal agreements to ascertain the legal relationship between the parties and in particular to identify the duties owed. Looking for the moment at the Shareholders Agreement (as to which see paragraph 83ff below), the business which it was envisaged would be carried on by SCFF, (the ``Business'') was defined in the Shareholders Agreement as follows:

    ``the business of wholesale butchers, meat processors, slaughterers, processors of hides, skins and animal by-products and pet food manufacturers''.

  8. At all material times prior to the BSE crisis in March 1996 the business carried on by JHC comprised or included the following (which, like much of this introduction, I take from the closing submission of Mr Weatherill QC and Mr Griffiths and accept as accurate):

    a. slaughtering cattle, mainly cows;

    b. procuring clean cattle for slaughter for Romford Wholesale

    c. selling beef, predominantly from cows, mainly bone-in but some bone-out;

    d. selling hides, offal and other by-products;

    e. slaughtering lambs and sheep, and some pigs;

    f. selling lamb and sheep meat, both in the UK and in export markets; and

    g. pet food manufacturers.

  9. The terms bone-in and bone-out, which will appear a number of times in this judgment, are perhaps self-explanatory. Meat is bone-in if it has not been boned; it is bone-out if the bone has been removed so that the carcass is ready for preparation for jointing and subsequently packaging where appropriate.

  10. At the time when the parties first started their discussions for the acquisition by the Heffer family interests of a share in JHC's business, a pet food business was being carried on through a subsidiary of JHC. By August 1996, the pet food business, which was proving unprofitable, had closed. Further, following the start of the BSE crisis in 1996, it was no longer possible to introduce cow beef into the human food chain. This, unsurprisingly, had a major adverse impact on SCFF's business. It was forced to suspend its business of killing cows for the human food chain and undertook the following business activities:

    a. culling cows for the government;

    b. procuring clean cattle for slaughter for RWM;

    c. slaughtering lambs and sheep;

    d. selling cow hides and sheep skins;

    e. selling lamb and sheep meat, both in the UK and in export markets.

  11. The Langport site was previously owned by JHC and is now owned by SCFF. As part of the arrangements between the Cobdens and the Heffers, a boning hall was constructed (at the expense of JHC) in which RWM has ever since carried on a major part of its boning business. RWM, and later RWM Langport, have occupied the boning hall under the terms of a lease which I will come to in due course.

  12. The formal documentation governing the relations between the Cobden family interests (in particular CIL), the Heffer family interests (in particular RWM, RWM Langport and RWM Dorset) and RWM operates at different levels:

    a. Relations between the shareholders in SCFF have at all material times been governed by its Articles of Association and a Shareholders Agreement dated 19 August 1996 (``the 1996 Shareholders Agreement''). This was in broadly similar terms to an earlier agreement made in 1993 (``the 1993 Shareholders Agreement''). It was made between CIL and RWM. RWM's shareholding was later transferred to RWM Langport as part of an internal restructuring of the RWM group and, in connection with that transfer, RWM Langport entered into a Deed of Adherence with CIL executed on 31 December 1998 under which it covenanted to be bound by and comply with the 1996 Shareholders Agreement and to assume the benefits of it as if it had been an original party. It should be noted that RWM nonetheless continued to be bound by, and remain liable under, the 1996 Shareholders Agreement: it was not discharged as a result of the transfer of shares to RWM Langport and the Deed of Adherence. The 1996 Shareholders Agreement was later varied by a Deed of Variation dated 14 May 1999. I shall refer to these agreements as the Shareholders Agreement without distinction unless the context otherwise requires.

    b. The shareholders' entitlement to dividends was further regulated by a Dividend Distribution Policy Agreement dated 17 November 2000 (``the Dividend Agreement''). Clause 2 of the Dividend Agreement provides for the distribution of 75% of Distributable Profits if cash flow permits.

    c. Trading relations between SCFF and RWM have been regulated by a Trading Agreement dated 22 July 1993 (``the Trading Agreement'') superseded in 2000 by a Memorandum of Understanding (``MoU'') dated 17 November 2000, a document of considerable importance in this case.

    d. The relationship of landlord and tenant has been regulated by a lease dated 4 January 1994 (``the Lease'') made between JHC and RWM under which RWM was granted a lease of the Premises (as defined in the Lease and including the boning hall) for a term of 25 years from the date of the Lease.

    e. There were sheep trading activities between SCFF and RWM Dorset. In this context, a Supply Agreement made between Southern Counties Beef and Lamb Producers' Club Ltd (``SCB&L'') and RWM Dorset (``the Supply Agreement'') dated 4 March 1998 is of relevance. I mention it here only to identify it. It seems to be common ground that the...

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