#6639 - Boardman V. Phipps - Commercial Remedies BCL

Boardman v. Phipps

Facts

The first appellant is a solicitor and the second appellant is a beneficiary under a will made by his father, who died in 1944. The will directed the trustees to pay an annuity to the widow and the residue was to be divided among his children in these proportions: 5/18ths was to go to the second appellant; 5/18ths to the estate of a deceased son; 5/18ths to the respondent and 3/18ths to a daughter, Mrs. Noble. The trustees under the will were the widow, Mrs. Noble and a Mr. Fox, a chartered accountant.

Trust Holdings in Lester & Harris: Among the trust assets was a controlling interest in the family business of Phipps & Son Ltd., textile manufacturers, and also 8,000 out of 30,000 shares of 1 each in a private company, Lester & Harris Ltd., which also manufactured textiles and had factories at Coventry and Nuneaton and also in Australia.

In 1956 Boardman as solicitor to the trust decided that the recent accounts of Lester & Harris were very unsatisfactory and that something should be done to improve the position and with this in view the appellants attended the annual general meeting of the company held in December, 1956, having obtained proxies from Mrs. Noble and Mr. Fox. They were not satisfied with the answers given at the meeting regarding the state of the company's affairs. They then decided that the only way to improve the position was to endeavour to obtain control of the company and with this in view to make an offer for all the outstanding shares in Lester & Harris. This was the first phase of a series of three in the negotiations which culminated in their purchasing all the outstanding shares in May, 1959. Their avowed object was thereby to improve the value of the trust holding in Lester & Harris. Mr. Fox was informed of their intentions and although he gave no formal consent he raised no objection, as he thought that to have the Lester & Harris shares in friendly hands could not but work to the advantage of the trust.

Purchase of shares in Lester & Harris: There was never any question at this time of the trustees buying the shares, which in fact they had no power to do. But there is no doubt that at this time Boardman, in his relations with Mr. Fox and Mrs. Noble, was acting as solicitor to the trust. When he attended the annual general meeting he acted as agent for the trustees and in his relations with Lester & Harris prior to and including the formal offer for the shares he was purporting to act for the trustees and in their interests. In this first phase Boardman obtained information from the company as to the prices at which shares had recently changed hands and on January 24, 1957, after informing the directors of their intentions, the appellants made an offer of 2 5s. per share to the members of Lester & Harris which was conditional on acceptance by not less than 15,500 holders of shares. This offer was subsequently increased on February 25, 1957, to 3 per share. This offer only received acceptance from 2,925 shareholders. Thus ended phase 1 of the negotiations.

The opening of phase 2 was a letter, dated April 26, 1957, from Boardman to Mr. Smith, chairman of the board of Lester & Harris, in which the suggestion was made that the assets of the company should be divided between the Harris family and the trustees, one suggestion being that the Harris family should be the sole owners of the Australian venture of the company and the trustees should own and control the English side of the business. During this phase Boardman obtained from the company extensive and valuable information as to the value of the company's assets. This information is fully detailed in the judgment of Wilberforce J. 119In obtaining this information Boardman was avowedly acting on behalf of the trustees.

Phase 3 began in October, 1958. The widow died on November 19, 1958. On October 7, 1958, Smith informed Boardman that he was prepared to sell his shares and to recommend his associates to sell their shares to the appellants at 5 each. A conditional agreement for the sale of these shares was made on March 10, 1959. Subsequently on May 26, 1959, the appellants gave notices making unconditional agreements to buy 14,567 shares held by Smith and his associates at the price of 4 10s. per share. This, in addition to the earlier agreements to purchase 2,925 at 3 and the purchase of a further 4,494 shares at 4 10s each made the appellants holders in all of 21,986 shares.

The 21,986 shares in Lester & Harris are the shares of which the courts below have held the appellants to be constructive trustees and in respect of which as to 5/18ths the appellants are accountable to the respondent for the profits arising from such purchase.

Question

The question, and the only question before this House, is whether the appellants are constructive trustees of these shares

Holding

Boardman set the ball rolling in his capacity as solicitor to the trustees and, in my view, he continued to act in this capacity throughout the negotiations. The three phases of the negotiations were continuous and designed to the same end, namely, the purchase of the controlling interest in Lester & Harris.

I take the view that from first to last Boardman was...