Grace v Sheehan & Hall
| Jurisdiction | Ireland |
| Judge | Mr. Justice Roderick Murphy |
| Judgment Date | 21 March 2011 |
| Neutral Citation | [2011] IEHC 163 |
| Court | High Court |
| Docket Number | [2001 No. 168 COS] |
| Date | 21 March 2011 |
[2011] IEHC 163
THE HIGH COURT
BETWEEN
AND
STOCK EXCHANGE ACT 1995 S30(1)
STOCK EXCHANGE ACT 1995 S30(8)
SOLLOWAY & ANOR v MCLAUGHLIN 1938 AC 247
BBMM FINANCE (HONG KONG) LTD v EDA HOLDINGS LTD & ORS 1990 1 WLR 409 1991 2 AER 129
SACHS v MIKLOS & ORS 1948 2 KB 23 1948 1 AER 67
SHANAHANS STAMP AUCTIONS LTD v FARRELLY & DAWSON 1962 IR 386 1964 98 ILTR 4
MALKINS NOMINEES LTD v SOCIETE FINANCIERE MIRELIS SA & ORS UNREP 22.11.2004 2004 EWHC 2631 (CH)
MCMAHON & BINCHY IRISH LAW OF TORTS 3ED 2000 PARAS 30.40-30.41
BARLOW CLOWES INTERNATIONAL LTD (IN LIQUIDATION) & ORS v VAUGHAN & ORS 1992 4 AER 22 1992 BCLC 910
COMPANY LAW
Stockbrokers
Dissolution - Distribution of assets - Conversion - Method of valuation of shares - Date of wrongful sale - Whether shares should be valued at highest level - Whether shares should be valued according to mean, median or mode - Stock Exchange Act 1995 (No 9), s 30 - Share value determined (2001/168Cos - Murphy J - 21/3/2011) [2011] IEHC 163
Re W and R Morrough: Grace v Sheehan
Facts: The Court had ruled in favour of the interests of clients in respect of the wrongful sale of shares from a client bank account. The issue arose as to the entitlement of the clients of the firm. The applicant Receiver had sought a number of orders and directions. There were insufficient shares available to satisfy all of the lawful claims to the shares. It was submitted by the Receiver that the measure of damages was to be assessed by reference to the date when the wrongful sale took place. It was submitted by the clients that the fairest and most appropriate way to value the loss to persons whose shares were sold without authority was that the shares in any given class should be valued by reference to the greatest value which was attained during the relevant period.
Held by Murphy J. that the price needed to be determined in a pragmatic manner to facilitate implementation by the Receiver. The most frequently occurring value was the most likely value of the shares during the relevant period. The Court could not determine a unique valuation date. The Court accordingly determined a valuation based on the mode of the range of prices from the time of acquisition of the shares to the date of Receivership as being the most equitable.
Reporter: E.F.
JUDGMENT of Mr. Justice Roderick Murphy delivered the 21st day of March 2011
This motion dated the 9 th September, 2010, was heard on the 18 th January, 2011. The applicant, as Receiver, sought a number of orders and directions in relation to the date of valuation of shares held by or to the order of W. & R. Morrough, the above mentioned firm of stockbrokers, in circumstances where those shares had been sold by that firm without the clients' authorisation.
On the 9 th September, 2010, the court had ruled that the interests of clients who claimed against the client bank account of the firm in relation to the wrongful sale of the shares was to be represented by Mr. James Sheehan, the first named respondent, who is one of the firm's clients.
The interests of clients who would cash claims against the firm's bank account was agreed to be represented by Mr. Hugh Hall and Mrs. Barbara Hall, the second named respondents who were also clients of the firm.
These parties, among others, had already made submissions to the hearing by this Court in 2003 regarding the distribution of shares held on the order of the firm. The court heard opposing views and made orders on the 6 th May and 31 st July, 2003. The court declared, in its judgment dated the 6 th May 2003, that it was inappropriate to direct that there should be a general pooling of client assets to the firm for the purpose of distributing such assets rateably as between clients of the firm. Subject to the directions in relation to the costs of the proceedings and the fees, costs and expenses incurred by the Receiver, the court further declared that;-
(a) Clients of the firm on whose behalf shares were purchased by the firm or delivered to the firm were entitled to such shares where the purchases or deliveries, as applicable, had been duly recorded and the books and records of the firm, the shares being identifiable and having not been disposed of.
(b) Where insufficient shares were held by or on behalf of the firm to satisfy all of the lawful claims of clients to a particular line of shares, the available shares should be treated as a pool of shares and distributed rateably as between the clients with lawful claims to those shares in proportion to the extent of each such claim.
(c) Where there were insufficient shares to satisfy the lawful claims of clients, the clients affected by the shortfall should be entitled to make a claim in respect of the shortfall against the monies in the client bank accounts of the firm, such claims to rank rateably with other clients claims against those monies (which the Receiver referred to as the "Shortfall Shares").
(d) The clients with claims to shares which were never purchased by the firm should be entitled to claim against the monies in the client bank accounts of the firm, with such claims to rank rateably with other client claims against those monies, and
(e) Where share, the property of the clients, were sold without authority by the firm the claims in respect of those shares or of the sale of those shares should also lie against the monies in the clients' bank account of the firm and should rank rateably with the claims of the other client against the client bank accounts of the firm.
The grounding affidavit of Tom Grace, the Receiver, averred to the fact that all of the shares in category (a) were returned to the clients of the firm except those shares which were to be sold, with the sanction of the court, to meet the cost of the receivership. All of the shares in category (b) were returned to the clients of the firm rateably with the same exception.
The application for directions before the court, relates firstly to para. (c) - the "Shortfall Shares". Mr. Sheehan represented this category of clients.
Secondly, para. (d) relates to clients whose shares were never purchased by the firm, though the firm had funds to do so. These clients were represented by Mr. and Mrs. Hall.
On the 27 th April, 2001, the Receiver was appointed on foot of an application to the Central Bank pursuant to s. 30(1) and 30(8) of the Stock Exchange Act 1995, which provides for the winding up or dissolution, of a stock exchange or member firm unable to meets its obligations to its clients or creditors.
The Receiver averred to the complexity of the receivership, which had raised a number of difficult legal and other issues, which led to the judgment of this Court of the 6 th May, 2003, already referred to.
The problems encountered included instances of shares being transferred out of the name of the clients and into the account of Morrough Nominees Limited in CREST without the knowledge or authority of the clients. The pool of shares in CREST were subject to continuous movement with shares being lodged and withdrawn making it impossible in many cases to identify the date when the wrongful sale of shares took place. The Receiver averred that on the date of his appointment as Receiver there were insufficient shares available in the relevant pool of shares to satisfy all of the lawful claims to such shares. In such circumstances it was necessary to identify a method of valuing the shareholding. It was essential to identify the date on which a valuation was to take place.
Mr. Denis McDonald S.C., on behalf of the receiver, submitted that ordinarily, the measure of damages arising out of a wrongful sale of shares was assessed by reference to the date when the wrongful sale took place. He referred to Solloway v. McLaughlin [1938] A.C. 247, where a stockbroker had wrongfully sold shares deposited with him by a client. When the client later discovered the wrongful sale ("unauthorised conversion"), the stockbroker bought new shares at a time when the price of the shares was half of what the client had originally paid. The Privy Council held the client was entitled to damages assessed as of the date of the wrongful sale of the shares.
The Receiver submitted that that principle was reaffirmed more recently by the Privy Council in B.B.M.B. Finance (Hong Kong) Limited v. Eda Holdings Limited [1990] 1 W.L.R. 409, where shares sold without authority by an agent and the client was held to be entitled to damages assessed by reference to the value of the shares on the conversion.
Sachs v. Miklos [1948] 2 K.B. 23, concerned a claim for wrongful conversion of furniture stored in 1940, sold in 1944 and claimed back in 1946, after the war, when it had a considerably greater value. The claimant failed to keep the first named defendant aware of his whereabouts and having written letters to, and telephoned the claimant without success, sold the furniture. Lord Goddard C.J. (with whom Tuck L. J. and Jenkins J. agreed) held that the first defendant's action did amount to a conversion. If the claimant had received the letters the value of the goods converted was at the date of the sale. If he had not known or ought not to have known that his goods would be sold and did not find out until 1946, it seemed to the court that, however unfortunate for the first named defendant it was not possible to say that he was not entitled to recover the value of the goods at that time.
The...
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