Aristides George Potamianos v Edwin John Prescott
| Jurisdiction | England & Wales |
| Judge | Richard Spearman |
| Judgment Date | 18 December 2020 |
| Neutral Citation | [2020] EWHC 3465 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2017-006788 |
| Date | 18 December 2020 |
[2020] EWHC 3465 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (CHANCERY DIVISION)
IN THE MATTER OF SPRINTROOM LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006
Royal Courts of Justice
Strand, London, WC2A 2LL
Richard Spearman Q.C.
(sitting as a Judge of the Chancery Division)
Case No: CR-2017-006788
Anthony Pavlovich (instructed by Blake Morgan LLP) for the Petitioner
Rebecca Page (instructed by Moore Barlow LLP) for the First Respondent
Hearing dates: 21–25 September and 6 October 2020
INTRODUCTION
This is the trial of a number of issues of quantum following my judgment on liability in two sets of proceedings (see Sprint Electric Ltd v Buyer's Dream Ltd & Anor [2018] EWHC 1924 (Ch), [2018] WLR(D) 585) (“the Liability Judgment”). The background to the dispute is set out in detail in the Liability Judgment and need not be repeated.
The first of those claims (“the Source Code claim”) concerned source code and other materials used by Sprint Electric Limited (“SEL”), and was brought by SEL against (a) a former director of SEL and the author of the source code (“Dr Potamianos”) and (b) Dr Potamianos' service company, Buyer's Dream Limited (“BDL”).
SEL is a wholly owned subsidiary of Sprintroom Limited (“SRL”), and 40% of the shares in SRL are held by Dr Potamianos. The second of those claims (“the Unfair Prejudice claim”) involved a petition presented by Dr Potamianos against (a) SRL and (b) the holder of the remaining 60% of the shares in SRL (“Mr Prescott”) under sections 994–996 of the Companies Act 2006, in which Dr Potamianos contended that the affairs of SRL and SEL had been conducted in a manner unfairly prejudicial to his interests, and sought an order requiring Mr Prescott or SRL to purchase his shares in SRL.
In the Liability Judgment, I decided the Source Code claim substantially in favour of SEL, and no appeal was made against that decision. The Source Code claim proceeded to a trial on quantum, in which SEL claimed damages in the total sum of £5,331,413. The trial on quantum was heard by His Honour Judge Hacon, who held that SEL was entitled to recover the cost of two weeks of the charging rate of Dr Fells under one head of claim, the cost of five months of the charging rate of Dr Fells under a second head, £2,000 for the time of Mr Lock and Mr Kelly under a third head, and £3,250 under some further heads (see Sprint Electric Ltd v Buyer's Dream Ltd & Anor [2020] EWHC 2004 (Ch) at [285]) (“the Source Code Quantum Judgment”). The precise amount of liability was left to be determined at a later hearing to deal with consequential matters.
Following the Liability Judgment, I ordered (1) that Dr Potamianos' 40% shareholding should be bought out at a price to be determined by the Court, (2) that any purchase of Dr Potamianos' shares should be at full pro rata value, without discount for the fact that his is a minority holding, and (3) that a payment should be made by SEL to BDL to reflect payments received by Mr Prescott's service company, Sameaim Limited (“Sameaim”), after the exclusion of Dr Potamianos from management, which had not been matched by similar payments to BDL — such that £4 should be paid to BDL for every £6 paid to Sameaim in the relevant period (“the Balancing Payment”). However, the first of those orders was subject to future determination of whether various offers made by Mr Prescott to buy Dr Potamianos' shares meant that there had, in fact, been no unfairly prejudicial conduct in the affairs of SRL, with the result that the petition should be dismissed. That question was left over to a further trial of matters relating to the quantification of such of Dr Potamianos' claims as might require expert evidence.
Both Mr Prescott and Dr Potamianos appealed those orders on a number of grounds. The Court of Appeal (McCombe, Leggatt and Rose LJJ) (i) allowed Dr Potamianos' appeal relating to the requirement to assess the offers made by Mr Prescott, but (ii) dismissed Mr Prescott's appeal in its entirety and (iii) dismissed Dr Potamianos' appeal on all other grounds (see Prescott v Potamianos & Anor [2019] EWCA Civ 932, [2019] 2 BCLC 617) (“the Appeal Judgment”). The Court of Appeal said at [144]–[145]:
“An evaluation of all the circumstances surrounding the offers shows that none of them rendered Dr Potamianos' exclusion from the Company fair. They could not be relied on to defeat Dr Potamianos' petition and it would make no difference to that conclusion that an expert might now value the shares as at the time the offers were made at less than the £1.34 million or £1 million offered …We do not think that the expert evidence of valuation, whatever its result, will be capable of producing a result that would deny Dr Potamianos any relief upon his petition. That is not to say that the offers made may not have some bearing upon costs questions, depending upon the outcome.”
Accordingly, the Court of Appeal ordered that the issues for the trial of quantum should be recast to exclude consideration of the offers that had been made by Mr Prescott.
At [393] of the Liability Judgment, I said “I do not consider that the fault in this case lies by any means all on one side”. At [67] of the Appeal Judgment, the Court of Appeal said:
“We would add that in each party's skeleton argument for this appeal he ‘puts his best foot forward’ in identifying the features of the case upon which he relies to put the other in the worst possible light: see e.g. paragraph 11 of the argument for Mr Prescott and paragraph 5(5) of Dr Potamianos's argument. In our judgment, such paragraphs only serve to support the judge's overall conclusion that fault lay on both sides.”
The issues which I now have to decide comprise, in essence: (1) the amount of the Balancing Payment; (2) the price to be paid to Dr Potamianos for his 40% shareholding in SRL; and (3) whether Dr Potamianos is entitled to interest or quasi-interest, and if so for what period(s) and at what rate(s).
I am most grateful to Mr Pavlovich (for Dr Potamianos) and Ms Page (for Mr Prescott) for their full, clear and very helpful written and oral submissions on those issues.
THE APPLICABLE LEGAL PRINCIPLES
Section 994(1)(a) Companies Act 2006 allows a member of a company to petition the Court on the ground that “the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of… some part of its members (including at least himself)”. In accordance with section 996(1), the Court “may make such order as it thinks fit for giving relief in respect of the matters complained of”. In particular, by section 996(2)(e) it may order the other members or the company to purchase the petitioner's shares (a “buy-out order”). That has happened in this case.
In Re Bird Precision Bellows Ltd [1986] Ch 658, Nourse J said (in relation to the predecessors to s.994):
“Although both sections 210 and 75 are silent on the point, it is axiomatic that a price fixed by the court must be fair. While that which is fair may often be generally predicated in regard to matters of common occurrence, it can never be conclusively judged in regard to a particular case until the facts are known.”
In the same case, Oliver LJ said at p669:
“The whole framework of the section, and of such of the authorities as we have seen, which seem to me to support this, is to confer on the court a very wide discretion to do what is considered fair and equitable in all the circumstances of the case, in order to put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company; and I find myself quite unable to accept that that discretion in some way stops short when it comes to the terms of the order for purchase in the manner in which the price is to be assessed”.
Similarly, in the Liability Judgment, I stated at [373] that “when considering unfair prejudice, the central concern of the court is to determine what is fair, just and equitable”.
Among other things, the Court “retains a wide freedom to disregard the views of experts and apply the court's view of what is fair and sensible in all the circumstances” ( Hollington on Shareholders' Rights, 9 th ed, §8–45).
Mr Pavlovich submitted that, beyond the above general approach, the question of the share price will depend on the evidence, so care must be taken in deriving any points of general principle from decided cases (see Hollington at §8–45). In particular, when dealing with the hypothesis of a sale by a willing seller to a willing buyer, as in the present case, “any departure from reality must either be compelled by the hypothesis, or at least based on solid evidence rather than assumption or speculation” ( Chilukuri v RP Explorer Master Fund [2013] EWCA Civ 1307, Lewison LJ at [57]). This is the “principle of reality” upon which Mr Prescott also relies. However, care is needed in deriving any other principle from Chilukuri, which concerned the assessment of damages for breach of contract, rather than relief for unfair prejudice. The crucial difference is that in the present case the Court is concerned with a notional sale of the entire share capital, whereas there the sale was limited to a 26% minority holding.
Mr Pavlovich further submitted that in valuing a contingent liability (or a contingent asset), the court is permitted to take into account...
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Sprint Electric Ltd v Buyer's Dream Ltd
...the Unfair Prejudice Claim which had not been agreed were the subject of a further judgment from me: see Potamianos v Prescott & Anor [2020] EWHC 3465 (Ch) (“the Unfair Prejudice Quantum Judgment”). In brief, those issues were resolved by me as follows: (1) With regard to the Balancing Pay......