Broadcasting Investment Group Ltd v Adam Smith
| Jurisdiction | England & Wales |
| Judge | Andrew Simmonds |
| Judgment Date | 21 September 2020 |
| Neutral Citation | [2020] EWHC 2501 (Ch) |
| Date | 21 September 2020 |
| Docket Number | Case No: BL-2019-000727 |
| Court | Chancery Division |
[2020] EWHC 2501 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Rolls Building, 7 Rolls Building,
Fetter Lane, London EC4A 1NL
Andrew Simmonds QC
(sitting as a Deputy Judge of the High Court)
Case No: BL-2019-000727
Dan McCourt Fritz (instructed by Withers LLP) for the Claimants
Joseph Sullivan (instructed by Gowling WLG (UK) LLP) for the First Defendant
No appearance for the remaining Defendants.
Hearing dates: 13 November 2019 and 14 August 2020
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.
Andrew Simmonds QC
Andrew Simmonds QC:
Introduction
This is an application by the First Defendant, Mr Adam Smith (“Mr Smith”), to strike out under CPR 3.4, alternatively for reverse summary judgment under CPR 24.2 in respect of, certain claims made against him by the three Claimants, to whom I shall refer respectively as BIG, VIIL and Mr Burgess. Mr Burgess is the majority shareholder in VIIL which in turn owns 51% of the issued share capital of BIG. Mr Burgess is a director of both VIIL and BIG. In broad summary, the Claimants seek to enforce an alleged oral agreement made in October 2012 with Mr Smith and the Second Defendant (“Mr Finch”) for the transfer of shares in two broadcasting technology companies to a joint venture vehicle, namely the Fifth Defendant (“SS PLC”), in which BIG, Mr Smith, Mr Finch and one other investor would be, and in fact became, shareholders. SS PLC is now in creditors' voluntary liquidation.
The claims against Mr Finch have, by agreement, been stayed pending the outcome of Mr Smith's strike-out application.
Mr Smith's application was issued in June 2019 and was originally based on three separate grounds, viz. (1) that a claim by BIG in respect of the purported forfeiture of its shares in SS PLC was not properly constituted, in particular because SS PLC had not at that stage been joined as a defendant; (2) that the claims by BIG and Mr Burgess to enforce the oral transfer agreement are barred by the so-called “reflective loss” principle, it being contended by Mr Smith that the only legally maintainable claim in that regard is vested in SS PLC; and (3) that an alternative claim pleaded by VIIL and Mr Burgess to enforce a restructuring agreement made in 2014 has no prospect of success.
I heard argument initially on 13 November 2019. At an early stage, I granted the Claimants' application to join SS PLC as the (then) Fifth Defendant and to amend their Particulars of Claim in such a manner as to (a) discontinue their claims in respect of two Cayman Islands companies which had been joined as the Third and Fourth Defendants, and (b) to re-plead the claim in respect of the purported forfeiture of BIG's shares in SS PLC. The parties agreed that this disposed of ground (1) of Mr Smith's strike-out application. I also heard submissions on grounds (2) and (3), with most of the argument being devoted to ground (2).
Towards the end of the day's hearing, Counsel alerted me to the fact that the most recent Court of Appeal authority on the reflective loss principle, namely Marex Financial Ltd v Sevilleja [2019] QB 173 (“ Marex”), had been appealed to the Supreme Court and, moreover, that the Supreme Court had heard argument on the appeal in early May 2019, a 7-Judge panel had been convened so as to permit a root and branch reappraisal of the principle (which had proved to be highly controversial both in previous decided cases and in academic writing) and the parties' shared expectation was that judgment would be delivered by the Supreme Court imminently. In those circumstances, I considered it unsatisfactory for me to decide Mr Smith's application without waiting for the Supreme Court's decision and I accordingly adjourned the application pending the determination of the appeal to the Supreme Court in Marex.
In the event, the Supreme Court's decision in Marex was delivered on 15 July 2020 ( [2020] UKSC 31). I invited the parties to address me on how (if at all) that decision affected their earlier submissions on the reflective loss principle and a further hearing was convened on 14 August 2020 for that purpose.
As anticipated, the Supreme Court judgments in Marex have clarified the law governing the reflective loss principle and made my task considerably more straightforward. Nevertheless, Mr Smith's application raises some issues which remain challenging and I am grateful to both Mr Sullivan (for Mr Smith) and Mr McCourt Fritz (for the Claimants) for their helpful oral and written submissions.
The Facts
My account of the facts is taken from the Amended Particulars of Claim (“APOC”). Mr Sullivan accepted that, for the purposes of determining his client's application, the allegations made in the APOC must be treated as factually correct, although he made it clear that, if the claim were to proceed, Mr Smith would contest many of them including, in particular, the allegation that an oral joint venture agreement was concluded with the Claimants. Mr Smith has yet to file a Defence.
Mr Burgess claims to have substantial expertise and long experience in the development of start-up companies in the technology sector. He says that he was introduced to Mr Smith in February 2012 when he (Mr Burgess) was looking for a software developer to assist with the development of a low-cost broadcasting unit. Mr Smith was associated with a company named Simplestream Ltd (“SS Ltd”). Its directors were Mr Smith and Mr Finch. Mr Smith told Mr Burgess that SS Ltd could develop the required software but the company required further investment. As a result Mr Burgess and/or VIIL were invited to invest in the business of SS Ltd. Mr Burgess told Mr Smith that he/VIIL would not themselves invest in SS Ltd but that he could introduce outside investors in the form of a Mr Goddard and a Mr Macpherson and companies associated with them.
SS Ltd was owned as to 80% by a Ms Cynthia Franklin and as to 20% by Mr Smith. Another company, TV Player Ltd (“TVP”), was said to be owned as to 75% by Ms Franklin, as to 20% by Mr Smith and as to 5% by Mr Finch. Mr Burgess says that in August 2012 Mr Smith informed him of a dispute between himself and Ms Franklin which had been resolved by an agreement providing for the transfer of all Ms Franklin's shares in SS Ltd and TVP to Mr Smith, thereby giving Mr Smith total, or nearly total, control of the two companies.
At this point in the story, paragraphs 17 and 18 of the APOC plead as follows:
“The broad understanding between Mr Burgess, Mr Smith, Mr Finch, Mr Goddard and Mr Macpherson by about September/October 2012 was that, in addition to his role through VIIL in introducing Mr Goddard and Mr Macpherson as the major capital investors to the businesses of SS Ltd and TVP, Mr Burgess had played, and would continue to play, a substantial role in supporting the development and expansion of the two companies by assisting in their management and generally applying his business expertise. It was intended between the aforesaid parties for the businesses of those two companies to be pursued for the mutual benefit of those participants in the form of a joint venture between them and/or the corporate vehicles connected with them (the “ Joint Venture Business”)….
In about October 2012 Mr Burgess and Mr Smith agreed that BIG as the vehicle of VIIL and Vii should be entitled to 39% of the equity in a company to be called “Simplestream Group” on the basis that Simplestream Group would become the holding company for SS Ltd and TVP. Mr Burgess also suggested that Simplestream Group should hold (i) a stake in another company substantially owned by VIIL and Skoosh called Seven Broadcasting Technologies Ltd (“SBT”), and which owned valuable intellectual property rights which were relevant to the Joint Venture Business…”.
Vii was an investment vehicle of Mr Goddard and Mr Macpherson. BIG was incorporated on 15 October 2012 and its shares were held as to 51% by VIIL (which in turn was controlled by Mr Burgess) and as to 49% by Skoosh Investments Ltd (at one time the Fourth Defendant), another Goddard/Macpherson investment vehicle.
The alleged oral joint venture agreement is pleaded in paragraphs 23 and 24 of the APOC:
“23. On 30 October 2012, a meeting took place…which was attended by Mr Smith, Mr Finch, Mr Macpherson, Mr Burgess and Simon Burgess (“ Simon”, who is the son of Mr Burgess) (the “ 30/10/12 Meeting”). At the meeting, the following was orally agreed between (i) BIG (acting by Mr Burgess), (ii) Mr Smith, (iii) Mr Finch, (iv) Mr Burgess, (v) Skoosh (acting by Mr Macpherson) and (vi) Vii (also acting by Mr Macpherson) (“the Joint Venture Structure Agreement”):
(a) Mr Smith would procure the incorporation of a public company to be called Simplestream Group PLC, to act as the holding company for the Joint Venture Business which was to be pursued for their mutual benefit.
(b) In order to capitalise that company, part of a loan in the amount of £150,000 previously made by BIG to SS Ltd in connection with a venture called the Ottilus joint venture...
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