Alvona Developments Ltd and The Manhattan Loft Corporation (AC) Ltd and Powis Assets Ltd
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE PETER SMITH |
| Judgment Date | 19 July 2005 |
| Neutral Citation | [2005] EWHC 1567 (Ch) |
| Docket Number | Case No: 3413 of 2005 |
| Date | 19 July 2005 |
| Court | Chancery Division |
[2005] EWHC 1567 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Peter Smith
Case No: 3413 of 2005
Andrew Thompson (instructed by Ingram Winter Green) for the Claimant
D W Mayall (instructed by Baskin Ross & Co) for the Second Defendant
Hearing date: 6 th July 2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Peter Smith J:
INTRODUCTION
This is the judgment on hearing of an Application made by Part 8 Claim form issued on 24 th May 2005 under section 371 of the Companies Act 1985 for an Order that a general meeting of the First Defendant company The Manhattan Loft Corporation (AC) Ltd ("The Company") be held together with a direction that such meeting shall be valid provided it is attended by at least one member in person or by a proxy.
In addition there is an Application by the Claimant for summary judgment under Part 24 on that claim by Application issued on 29 th June 2005 with the permission of the Court (Order of Etherton J 28 th June 2005).
Prior to that Evans-Lombe J on 7 th June 2005 had made an Order for expedition of the Part 8 claim.
Mr Thompson who appears for the Claimant acknowledged that in view of the evidence filed and absent an Order for cross examination and determination of disputed factual matters (as set out further in this judgment) it is not possible to hear the substantive application issued under the Part 8 claim form. However he contended before me that on the assumption for the purpose of the Application only that the facts of the relationship between the parties was that contented by the Second Defendant that the Claimant was in any event entitled to summary judgment even if those were the factual issues.
Accordingly the hearing before me was only in respect to the Part 24 Application.
BACKGROUND
The Claimant Alvona Developments Ltd ("Alvona") is a company incorporated under the laws of the Republic of Cyprus. It holds 70% of the issued share capital in the Company. The Second Defendant Powis Assets Ltd ("Powis") is a company incorporated under the laws of the British Virgin Islands and holds the balance of the 30% shares in the Company.
Alvona is beneficially owned by Mario Laznik ("Mario"). He is a property developer. His affairs in England have been managed by his son Assaf Laznik ("Assaf").
Powis is represented in this country by Jeff Shapiro ("Jeff"). It appears that he is the beneficial owner of Powis. He has a brother Jerome Shapiro ("Jerome") a partner in the firm of WPF Glasner Gerber Shapiro Solicitors.
THE COMPANY
The company was acquired by Alvona and Powis on 2 nd June 2004 by acquiring the shares for £1,175,000 of which 70% was funded by a loan from National Westminster Bank PLC the balance being funded pro rata by Alvona and Powis. In addition to the securities over the company's assets Mario provided a personal guarantee to the bank in the sum of £250,000.
The Company is carrying on the business of one venture namely a building project in London SE1. It will be apparently a successful development when it proceeds to completion. The project is managed by Nuhomes Ltd which is a company in which Jeff is beneficially interested. It is to be paid a fee of £49,000 for the management services. There is no complaint about Nuhomes or as to the management of the project. The dispute which has arisen is in respect of the composition of the board of the Company and the inability of the two respective camps to agree how to deal with an action brought by a former managing agent who was marketing the property, how to deal with the appointment of new agents Knight Frank who somewhat unusually require an advanced payment of approximately £100,000 for their fees. Alvona are content with this but Powis is not.
The current director (a sole director) is a Mr Pearlman an Accountant. In view of the present dispute he will only act on the joint instructions of the two camps. As the camps cannot agree those matters nor can they agree prospectively the appointment of solicitors to respond to the claim intimated and solicitors to act on the ultimate sale of the development the board is deadlocked at a vital stage.
The Bank is clearly concerned but is not apparently seeking to enforce the security on account of the dispute. That might well be because it regards itself as fully secured and regards the present dispute as being an internal matter which does not at this stage impact on its interest. Nevertheless disputes like this generally do have an unsettling effect on a Company's bankers.
Jerome was a director at the time of the acquisition of the shares but apparently resigned on the 26 th November 2004.
ORIGINAL AGREEMENT AS TO COMPOSITION OF BOARD
Jerome acted on the acquisition of the shares. On 24 th May 2004 an email was sent to Mario, Assaf and Jeff which suggested that at that stage there was an agreement that each camp would appoint one director with Alvona's director to be Assaf and the other director either to be Mr Pearlman or some other appointee by Jeff. Somewhat surprisingly given the large size of the investment in to this single joint venture the relationship between the parties was never regulated by a written agreement.
Accordingly it is Alvona's case that as the majority shareholder it has the power in effect to control the appointment to the board by virtue of the power of the shareholders to appoint and remove directors in general meeting. The present Application is designed to procure that result. It cannot procure it without the assistance of the Court because of the actions that have taken place.
First Alvona sought to requisition a meeting in March 2005 under section 368 of the Companys Act 1985. Jerome's response was that he was not a director at the time the requisition served on him. It was accordingly re-served on Mr Pearlman who has ignored it. Alvona then exercised its rights under section 368 to convene an EGM itself. The proposed meeting was on the 14 th June 2005 but it was in-quorate because Powis failed to attend. The articles (Article 6(A)) require two members for a quorum. It is clear that Powis will adopt the policy of "the empty chair" to ensure that no meeting of members can take place.
The Company remains deadlocked because the parties cannot agree matters which directors have to decide upon. Accordingly Alvona seeks (1) to call an EGM where the quorum will be one and (2) at that EGM to either remove Mr Pearlman and appoint further directors or to appoint directors alongside Mr Pearlman. The justification for this naturally is the fact that the Company belongs beneficially to them as regards 70%.
The policy of Powis is to do nothing. Nuhome is carrying on the management and it maintains a joint control at board level.
As I have said above the Company remains deadlocked and as I intimated in the course of the hearing the deadlock will continue if the present Application is not acceded to. Even if the present Application is acceded to Mr Mayall on behalf of Powis indicated that it would then seek an injunction (which of course is not before me) to prevent Alvona seeking to implement the power of appointing and removing directors pursuant to an Order of the Court. There may or may not be difficulties about whether such an injunction should be granted and if so on what terms. However it is likely in my view that faced with such an Application and providing any cross undertaking in damages fortified that the Court will maintain the status quo of joint interest through Mr Pearlman or joint appointees to the board because that is the situation which has appertained effectively since the Company was acquired in June 2004. It will then be upon the parties to agree how matters should continue. If they cannot agree then I am not convinced Court would award control to Alvona as opposed to Powis but would suggest that the parties invoke the powers to appoint receivers for example under the backcloth of a section 459 petition. The reality is it is up to the parties; they ought to be able to agree a modus vivendi until the disputes are resolved but if they cannot that will be their failure and the only way in which the dispute can then be policed in the interim is by the appointment of an impartial 3 rd party. However such an Application is not before me and the views I express are merely tentative and should not be taken as expressing any concluded view if Powis made such an Application.
Powis is willing to agree a joint board representation. Alvona is willing to maintain a single board director on behalf of Powis but insists it should be enabled by the Court to exercise its rights by virtue of its 70% shareholding to procure the appointment of a majority of the board. It is said that the reason for the need for the majority is that the parties will not agree at board level. That demonstrates in my mind that Alvona intends in effect to impose its will on the Company at board level if it secures a majority appointment. The reality will be that Powis will have to agree or its representative will be overridden. In that eventuality the object would be to drive Powis if that is perceived by it to be unfair prejudice to present its own section 459 petition and seek injunctive relief if necessary. In that regard Alvona is prepared not to make any decisions at board level without giving Powis an opportunity to seek injunctive relief if it is advised that is appropriate. Nevertheless...
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