Bailey Ahmad Holdings Ltd v Bells Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Andrew Baker |
| Judgment Date | 13 November 2023 |
| Neutral Citation | [2023] EWHC 2829 (Comm) |
| Court | King's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2023-000232 |
[2023] EWHC 2829 (Comm)
Mr Justice Andrew Baker
Case No: CL-2023-000232
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane, London EC4A 1NL
Adam F. Griffiths (instructed by Freeths LLP) for the Claimant
Francis Moraes (instructed by Edwin Coe LLP) for the Defendant
Hearing date: 3 November 2023
Approved Judgment
This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to the National Archive. The date and time of hand-down is deemed to be 2.00 pm on 13 November 2023.
This Claim concerns Omer & Company Accountants Ltd (‘the Company’), a company carrying on an accountancy business. The Company is owned by the claimant as to 40% and by the defendant as to 60%, on the basis of Articles of Association of the Company (‘the Articles’) and a Shareholders' Agreement (‘the Agreement’) each dated 31 July 2019.
The claimant says that the defendant committed and failed to remedy (if capable of remedy) material or persistent breaches of the Agreement. The claimant has purported to exercise contractual rights that arose if it is correct about that. It is clear from the evidence filed to date that the defendant says not only that it committed no relevant breach of the Agreement, but also that the claimant had and has no reasonable basis for the assertion of breach, indeed that the claimant knew and knows full well that there has been no breach, and so, in substance, has acted and is acting in bad faith in making the assertion. Nothing in this short judgment is intended to convey any view on any of those issues between the parties.
The Agreement contains a governing law and jurisdiction provision (Clause 24) providing that the Agreement and any dispute or claim arising out of or in connection with it, its subject matter or formation (including non-contractual disputes or claims) shall be governed by, and construed in accordance with, English law (Clause 24.1), and that the courts of England and Wales shall have exclusive jurisdiction over any such dispute or claim (Clause 24.2). All the disputes I have outlined above plainly fall within the scope of Clause 24.2.
The claimant says that it will not be necessary to resolve those disputes. It contends that on the proper construction of the Articles and the Agreement, it does not have to be correct in its claim that the defendant did commit (and, if relevant, fail to remedy) material or persistent breaches. Using the procedure under CPR Part 8, it seeks a declaration that:
“ the Claimant is entitled to rely on the Defaulting Shareholder mechanism of the … Agreement … and the Articles … based on the Claimant's honest belief in a material breach by the Defendant rather than requiring prior judicial determination of the presence or absence of material breach.”
The Articles define circumstances in which a shareholder becomes a ‘Defaulting Shareholder’, and create a mechanism by which, in those circumstances, the other shareholder as ‘Non-Defaulting Shareholder’ may buy the Defaulting Shareholder out of the Company. To propose the declaration sought, the claimant's case has to be, and is, that on the proper construction of the Articles, a shareholder becomes a Defaulting Shareholder if the other shareholder forms the belief that there has been a material or persistent breach of the Agreement that is either irremediable or unremedied, whether or not that is in fact so, i.e. even if the belief is mistaken.
The Part 8 Claim was listed for a case management hearing, which took place on 3 November, to determine whether it was an appropriate use of the Part 8 procedure or whether, as the defendant said, any litigation (if there is no amicable resolution of the parties' differences) should be under CPR Part 7. It may be that whether Defaulting Shareholder has the meaning under the Articles for which the claimant contends is a question of construction that in principle could be determined using Part 8. However:
(i) were the claimant correct on the question, litigation that should be conducted under Part 7 could not be avoided, given the defendant's position on the facts as summarised in paragraph above; and
(ii) the claimant's case depends upon an argument that the Articles do not mean what, at least at first sight, they appear to say.
It was clear from the solicitors' correspondence and Mr Moraes' skeleton argument for the defendant that the first premise for the defendant's case management position that this is not a proper case for Part 8 proceedings, because the disputes summarised in paragraph above cannot be avoided, is that the contractual construction proposed by the Part 8 Claim is not arguable. (The second premise is that Part 7 proceedings cannot be avoided anyway, because the honesty of the claimant's asserted belief that the defendant has committed relevant breaches will be in issue.)
Mr Moraes submitted with some force that at any first hearing in a Claim commenced under Part 8, even if it has been listed with case management in mind, a claimant should be prepared to show the court, if asked, that there is an arguable issue to be tried justifying the proceedings. He noted that in the correspondence, over a 12-month period, the claimant had been asked a number of times to explain its case and to identify whether there was any authority to support it, and the claimant had said it was acting with the benefit of counsel's advice. Acknowledging that the possibility of a summary disposal of the Part 8 Claim, if the defendant be correct that it is not arguable, was raised by the court at the hearing rather than by an application made by the defendant, Mr Moraes contended that the claimant's case indeed had no arguable merit and could properly be dismissed now. Summarily disposing of claims or issues is within the court's general case management powers.
Mr Griffiths for the claimant indicated that he was not as prepared as he would have wished to be to meet an argument of that kind. That was true both generally and because, in particular, he said he would wish to refer the court to authority that was not to hand at the hearing.
In those circumstances, I considered that justice would be served best by giving the claimant the opportunity to supplement Mr Griffiths' submissions at the hearing as to whether the declaration claim on the meaning of Defaulting Shareholder is arguable. Counsel addressed sufficiently in their skeleton arguments, and at the hearing, the possible case management solutions that might be adopted for it to be fair to settle directions for the subsequent conduct of this Claim, if it is to continue, without a further hearing. I therefore adjourned the hearing for a decision to be made on paper as to the viability of the claim after the claimant had put in any additional submissions it might wish to make, and for whatever order or case management directions may be appropriate in the light of that decision to be issued.
In the circumstances, I consider it is fair to determine now whether the claimant's construction of the Articles has any real prospect of being correct; and that the arrangement put in place at the hearing gave the claimant ample opportunity to show the court that it does, if that be possible.
Under that arrangement, the claimant put in a 10-page supplementary note from Mr Griffiths, with supporting authorities, and I have now considered the question of whether there is arguable merit in the claimant's proposed construction of the Articles with the benefit of that note, for which I am grateful. My conclusion is that the claimant's claim is not arguable. There is no real prospect of the court concluding that under the Articles a shareholder who has not committed, or (if relevant) has not failed to remedy, a material or persistent breach of the Agreement, is a Defaulting Shareholder if the other shareholder honestly but ex hypothesi erroneously thinks otherwise, is not arguable.
I agree with Mr Moraes' submission that in those circumstances, the proper outcome is that this Claim be summarily dismissed. Both parties, by counsel, assured the court that they wish to commit time and effort in the short term to resolving their differences without litigation if they can, through mediation or some other process of negotiated dispute resolution, and only to litigate if that short term...
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Iryna Gordiy v Jekaterina Dorofejeva
...should not have been commenced in the Commercial Court (as Mr Justice Andrew Baker J recently had cause to note in Bailey Ahmad Holdings Limited v Bells Holdings Limited [2023] EWHC 2829 (Comm), [31]–[32], another dispute worth less than £1m which was issued and the subject of a contested ......