O'Donnell v Shanahan
| Jurisdiction | England & Wales |
| Judge | Richard M Sheldon QC,Richard Sheldon QC (sitting as a Deputy Judge of the High Court) |
| Judgment Date | 07 August 2008 |
| Neutral Citation | [2008] EWHC 1973 (Ch) |
| Docket Number | Case No: 9567/2006 |
| Court | Chancery Division |
| Date | 07 August 2008 |
[2008] EWHC 1973 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Richard Sheldon Qc (sitting As A Deputy Judge Of The High Court)
In The Matter Of Allied Business And Financial Consultants Ltd
In The Matter Of The Companies Act 1985
Case No: 9567/2006
Andrew Clutterbuck (instructed by Cripps Harries Hall LLP) for the Petitioner
Max Mallin (instructed by Butcher Burns) for the First and Second Respondents
Hearing dates: 19–23 May, 3–6, 12–13 June
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.
August 2008
This is the trial of a petition presented under the Companies Act 1985 s 459 (now the Companies Act 2006 s 994) by the Petitioner, Mary O'Donnell (“ MOD”). She seeks an order that the First and Second Respondents, respectively John Joseph Shanahan (“JJS”) and James Anthony Leonard (“JAL”), her fellow shareholders and directors in the Fourth Respondent, Allied Business & Financial Consultants Ltd (“the Company”), buy her shares in the Company at a price calculated on the basis that certain alleged diversions of income and business opportunity and/or that other alleged wrongdoing had not occurred and/or that the Company should be treated as having the benefit thereof.
The evidence and argument at trial was directed towards the issue of whether the Company's affairs had been conducted in a manner that was unfairly prejudicial to the interests of MOD as a member of the Company, leaving the question of what relief should be granted, if such unfairly prejudicial conduct be established, to be determined at a later stage.
As is unfortunately all too common with unfair prejudice petitions, the breakdown of relations in a small company has generated a good deal of bitterness and recrimination, resulting in broad ranging allegations made against each other by the principal parties. Those parties in their written and oral evidence made allegations which go beyond the issues pleaded and which, for the most part, are irrelevant to the pleaded issues which I have to decide. Before summarising those issues, I should set out briefly the relevant factual background by reference to matters which are not controversial.
Factual setting
In the late 1980's, MOD, JJS, JAL and the Third Respondent, Paul Murtagh (“PM”) were all employees of the Bank of Ireland (“BOI”). JJS was the manager of the Finchley branch of BOI, JAL was the manager of the Croydon branch and PM the manager of the Cardiff branch of BOI. MOD was an officer at BOI working latterly at the Croydon branch. PM left BOI in January 1988 and the others resigned from their positions at later dates to work for the Company.
The Company was originally set up at the instigation of JJS, JAL and PM in late 1988. It was incorporated on 6 October 1988 under the name Allied Business and Financial Services Limited (it changed its name to its current name on 4 September 1990). The business of the Company was to provide clients with financial advice and assistance, including in particular arranging bank loans, mortgages and insurance. By its Memorandum of Association, the Company's objects were stated to be:
“(A) To carry on the business of financiers, bankers, financial agents…. financial, investment, industrial and non-industrial consultants, business advisers, office organisers, personnel and management consultants, business efficiency experts, insurance, mortgage and finance brokers;….
(B) To carry on any other trade or business which can, in the opinion of the Board of Directors, be advantageously be carried on by the Company….”
MOD was invited to join the Company in about May 1989. She resigned from BOI in the summer of 1989, at about the same time as JJS. By the beginning of October 1989, MOD, JJS, JAL and PM were equal shareholders in the Company (each owning 25 ordinary shares with a nominal value of £1 each) and were all appointed directors.
It is common ground that the Company operated as a quasi-partnership between MOD, JJS and JAL on the basis of a relationship of trust and confidence. It is not in dispute that each of them was entitled to, and received, a pro rata share of the profits of the Company's business. There is otherwise a dispute about the understandings which were reached between the participants at the time when the venture was set up, with which I deal below.
The Company originally operated an office in High St, Penge and in October 1989 moved to an office at 25 North Audley Street, London W1. In the early 1990's, the Company's Pension Fund acquired a property at Suite 3, Scott's Sufferance Wharf, 1 Mill Street London SE1 (“Scott's Sufferance Wharf”) from which the Company operated for a while. In about 1997, the Company's office moved to a space above the Charles Dickens pub at 160, Union Street, London SE 1 (“Union Street”) from where it continued to operate until relatively recently. Union Street was rented by the Company from a property partnership between JJS, JAL and Denis and John McCarthy which had acquired the Charles Dickens pub in 1997. In 1998 JJS and JAL acquired the shares of Denis and John McCarthy in the property partnership.
Initially, JJS and JAL concentrated on the arrangement of larger commercial loans but also had some involvement in residential mortgages. They were the “rain makers”, getting in the clients and spending much of their time out of the office, while MOD was responsible for administration and the back office. MOD also handled residential mortgages and general insurance queries. PM concentrated on the writing of life and term assurance in connection with loan proposals. PM tendered his resignation in February 1990 in acrimonious circumstances and had no further involvement in the Company's business. After PM's departure, MOD took over PM's role as regards life and term assurance.
In September 1990, the Company issued a further 2,500 shares to each of MOD, JJS and JAL, leaving them each holding 2525 shares with PM retaining his original 25 shares. It is for this reason that PM has been joined as a Respondent. However no relief is sought against him and he has played no part in these proceedings other than to give evidence on behalf of MOD.
Not long after the Company commenced business, the UK economy went into recession for about three years which adversely impacted on the Company's then business. In response, the activities of the Company (and in particular those of JJS and JAL) were broadened to include arranging the purchase and sale of businesses, acting as agents for banks and building societies, placing investments and deposits for clients and providing advice on financial and business restructuring.
The accounts of the Company show that its turnover between 1990 and 2007 was as follows:
Year £
79,538
155,429
123,239
118,536
148,482
155,864
144,211
167,106
142,782
189,926
163,502
204,577
165,456
126,678
116,289
139,076
92,840
57,903
After PM's departure, the profits from the business were shared equally between JJS, JAL and MOD. In addition to drawings from the Company by way of directors' remuneration, cash payments made in respect of the Company's business was on occasion divided up between the three of them without being passed through the Company's books. The Company never built up capital to any material extent: the profits were generally shared out at the time they were made.
The causes of the decline of the business raise matters of controversy which I deal with below. What is not in dispute is that the Company's activities are now in substance dormant and that it is insolvent.
The allegations of unfairly prejudicial conduct
In the Amended Points of Claim (“APOC”), MOD alleges that JJS and JAL have conducted the Company's affairs in an unfairly prejudicial manner in relation to four transactions or types of activity. (A fifth, relating to properties in Orlando, Florida was not pursued at trial). Each of these transactions or types of activity is alleged to have been in breach of the understandings reached between the parties at the time the Company was established, in breach of the fiduciary duties owed by JJS and JAL as directors of the Company and in betrayal of the relationship of trust and confidence. The transactions or types of activity complained of are, in very broad terms, as follows:
(1) JJS and JAL acquiring an interest in the freehold and lease of 5th floor Aria House, 23 Craven Street, London WC2 (“Aria House”) in 1999 and in so doing diverting a business opportunity belonging to the Company to themselves and in the course of so doing perpetrating a number of frauds on the Company's clients (“the Aria House Transaction”);
(2) JJS and JAL personally providing services to, and making profits from, Eugene Harrington Marketing Ltd (“EHM”) from about August 1996 onwards as directors of and shareholders in EHM (“the EHM relationship”);
(3) JJS and JAL personally providing services to, and receiving payments from, Mr John Holleran (“Mr Holleran”) and companies associated with Mr Holleran (“the Holleran relationship”); and
(4) JJS and JAL obtaining for themselves the free services of a firm of solicitors, GH Law, in return for the Company referring clients to GH Law (“the GH Law relationship”).
JJS and JAL deny all the...
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