Airey v Cordell

JurisdictionEngland & Wales
CourtChancery Division
JudgeMR JUSTICE WARREN
Judgment Date24 Aug 2006
Neutral Citation[2006] EWHC 2728 (Ch)
Docket NumberCase No: HC/289/06

[2006] EWHC 2728 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

BEFORE:

The Honourable Mr Justice Warren

Case No: HC/289/06

BETWEEN:
Airey
Claimant
and
Cordell & Others
Defendant

MR JAMES POTTS (Instructed by Messrs Denton Wilde Sapte) appeared on behalf of the Applicant

MR SIWARD ATKINS (Instructed by Messrs Bernard Cordell) appeared on behalf of Defendant

Approved Judgment

Digital Transcript of Smith Bernal Wordwave Limited 183 Clarence Street Kingston-Upon-Thames Surrey KT1 1QT Tel No: 020 8974 7300 Fax No: 020 8974 7301 Email Address: tape@wordwave.co.uk

No of Folios: 152

No of Words: 10955

Thursday, 24 August 2006

MR JUSTICE WARREN
1

This is an application by the claimant for permission to amend his Particulars of Claim to plead a new claim and secondly to carry on the claim as a derivative action on behalf of the fifth and sixth defendants against the first to fourth defendants. There is no dispute about the amendments and I have already given permission for those amendments to be made and I will be referring to the claim as it is reformulated in the course of this judgment. The background is helpfully (and I think sufficiently) set out in the skeleton argument filed on behalf of the claimant.

2

He is a minority shareholder in the fifth defendant, Hills Number Plate Holdings Plc. The sixth defendant, Hills Number Plates Limited, is a wholly owned subsidiary of the fifth defendant and the operating company of the group. They are said to be UK market leaders in the manufacture and sale of vehicle licence plates and number plate components with approximately 75 employees and operating sites in Birmingham and Glasgow.

3

The fifth and sixth defendants had developed and applied for patents in relation to the Hilltech number plates. The Hilltech method of number plate manufacturing allows components to be housed discretely in the rear of the plate and hidden behind the vehicle registration details. Using the patent pending Hilltech number plate and radio frequency identification ("RFID") technology, the fifth and sixth defendants had developed a product known as E-plate. E-plate is a registered trademark of the sixth defendant. An electronic tag embedded in the E-plate allows details of vehicles and their movements to be monitored highly accurately. It offers, according to the claimant, huge potential for the future worldwide commercial exploitation of electronic vehicle identification. According to him, the fifth and sixth defendants have already entered into arrangements to market and distribute E-plate technology in many countries throughout the world.

4

More contentiously perhaps he says that the fifth and sixth defendants have also expanded their operation to include the development and sale of other electronic technology products, including non number plate applications of the chip developed for use in the E-plate. Examples of the product, he says, include bar code scanning systems for quality tracking and manufacturing purposes and electronic tags to monitoring moving assets. The first to third defendants, together with the claimant, are the shareholders and directors of the fifth defendant, the third defendant holding his shares through a corporate vehicle.

5

The development of the technology has involved and will involve critically the input of a Mr Boden. As the first defendant says in his witness statement:

"During 2003 he [Mr Boden] introduced us to a company that he was advising that required RFID to track aluminium cores for the print industry. He proposed recommending use of the RFID tag that had been developed for us to use with the Electronic Plate on the basis that he would be paid a commission of £1.00, from a sale price of £8.00, for each device sold and we have recently received an order for 5000 devices from that customer.

… by April 2005, I had agreed with Marcus Boden that he would come and work full time for us and introduce us to his contacts waive previously agreed commission provided that he became a director and received a substantial share holding in a company for which I would obtain adequate financing that was set up to exploit the RFID market with our Electronic Plate as one of its products. By adding Marcus Boden's expertise and contacts to our sales team, we would obtain some income in the first year from sales of other RFID products."

It is worth noting at this stage also that in a clearance letter to the Inland Revenue in relation to a de-merger proposal, BDO Stoy Haywood on behalf of the company stated that in addition to its core business of manufacturing and sale of vehicle licence plates:

"For a number of years, the group has also been developing electronic technology products. Examples include bar code scanning systems for quality, tracking and manufacturing purposes and electronic tags for monitoring moving assets",

the group there being the D5/D6 group.

6

There is no evidence from Mr Boden about what corporate structure he is or is not prepared to work in. There is nothing to support a suggestion, apart from a statement which might be thought to be self-serving in correspondence emanating from the defendant's advisers, that he will not work in a company in which the claimant is a shareholder. Indeed, that would be inconsistent with the fourth proposal (which I will come to in due course) which the defendants have put forward.

7

There have been four proposals by the defendants for dealing with the future involving the development of the technology through a new company, D4 as it turns out, that is E-plate Limited, a company bearing the same name as the product produced by D5 and D6.

8

The claimant complains that each of these proposals involves the first to third defendants acting in breach of their duties as directors or acting oppressively as shareholders. He says that the actual use made by the fourth defendant of the technology has already resulted in an actual breach of duty in respect of which the fourth defendant must account to the fifth and sixth defendants, in particular since there has been an unauthorised, or at least a not properly authorised, use of trademarks belonging to D6.

9

The defendants say that the claimant's real complaint, as the evidence shows, is not so much that the company is being deprived of the benefit of the opportunity to develop the technology but that he, the claimant, is not being allowed to share in the possibility of exploiting it, a complaint which they say is addressed by the fourth proposal. That may be so, but the way as a matter of legal analysis in which the claimant perceives that he can share in the opportunity, is to make sure that it is retained by the fifth and sixth defendants, whereas under a section 459 petition, which is an alternative remedy that the defendants suggest the claimant ought more properly to be pursuing, although he might have his shares bought out on the basis that the assets remain within the fifth and sixth defendants, he loses the speculative right to share in the long-term gains and it is his evidence that he wishes to retain that long-term possibility.

10

The defendants for their part say that their latest proposal will provide the claimant with precisely that. He will retain initially the same proportionate share as he has in the fifth defendant and has, according to the defendants, better rights overall than he currently has in relation to the fifth defendant. I say "initially", because outside investors will need to come in and his shareholding will be diluted, and that dilution, although it would also need to take place in relation to a corporate entity in relation to a business carried on within the fifth defendant or sixth defendant itself, would have a rather different diluting effect.

11

However, an alternative approach which, if it were commercially viable, could not be a matter of complaint by the claimant, would be if the new entity were initially a subsidiary of D5 and outside investors came in to that initial subsidiary as joint venturers and shareholders. The dilution then would be exactly the same as is going to occur under the fourth proposal.

12

The claimant for his part says that he does not understand why the new company cannot simply be made a subsidiary with the outside investor coming in in the way which I have just indicated. The defendants say in response to that that the economic health of the fifth and sixth defendants is poor (a matter of dispute) and that investors would not be prepared to come in. As to that there is no evidence from the proposal investors that they would or would not be prepared to do so.

13

The proposals themselves are set out in the pleading and in the skeleton argument on behalf of the claimant. I am afraid I need to cover them, in particular the fourth one.

14

The first proposal was notified to the claimant in October 2005. Under this proposal, the fourth defendant (of which the first to third defendants would own over 80 per cent of the issued share capital and the claimant would own none) would acquire a licence to produce, manufacture and market E-plate technology from the fifth and sixth defendants. Unnamed investors would lend £600,000 to E-plate Limited, the fourth defendant, as a condition of subscription for the balance of the issued share capital for which they would subscribe.

15

On 19 October 2005, the claimant was informed that no shares had been allocated to him but that he could invest as a financial investor if he provided a self-certification certificate, and in this sense he was being treated differently and less beneficially than the first three defendants who were getting their shares at par. He made attempts to obtain further information in relation to that proposal so that he could satisfy himself why the matter was not being pursued as an opportunity...

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