Fanmailuk.com Ltd and Another v Cooper & others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Sales,Mr Justice Morgan |
| Judgment Date | 21 October 2010 |
| Neutral Citation | [2010] EWHC 2647 (Ch),[2008] EWHC 3131 (Ch) |
| Court | Chancery Division |
| Date | 21 October 2010 |
| Docket Number | Case No: HC06C04445 |
[2008] EWHC 3131 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand,
London, WC2A 2LL
THE HONOURABLE MR JUSTICE SALES
Case No: HC06C04445
Mr Hugh Tomlinson QC & Mr Christopher Parker QC (instructed by Walker Morris) for the Claimants
Mr David Chivers QC & Mr Nigel Dougherty (instructed by Nabarro) for the Defendants
Hearing dates: 12/11/08 – 25/11/08
Mr Justice Sales :
This is the trial of a preliminary issue pursuant to an order dated 22 May 2008. The preliminary issue is whether the First Claimant (“Fanmail”) should be granted a declaration that it is the beneficial owner of the four issued shares in the Fifth Defendant (“DPL”). When they were originally issued on 17–18 September 2001, the shares were held one each by the First Defendant (“Mr Bob Cooper”), the Third Defendant (“Mr Zghari”), the Second Claimant (“Mr Burtenshaw”) and the Sixth Defendant (“Ms Wayne”). The only change in this position is that in 2002 Mr Zghari transferred his share to Mr Bob Cooper, who therefore now holds two shares. The Second Defendant (“Mr David Cooper”) is the son of Mr Bob Cooper.
Ms Wayne took her share in DPL, as a company formation agent, in the course of setting up DPL as an “off-the-shelf” company. It was left in her hands by an oversight. She has agreed to hold her share either for Fanmail, if Fanmail succeeds in its present claim, or for the other shareholders in DPL in proportion to their shareholdings. She has played no part in the trial.
The remainder of the action is a derivative claim brought by Mr Burtenshaw on behalf of himself and all the other shareholders in DPL in respect of the assignment from DPL to the Fourth Defendant (“MCashback”) of certain intellectual property rights which are discussed below. Mr Bob Cooper, Mr David Cooper and Mr Zghari are shareholders in MCashback and remain closely involved in its business. Put very shortly, the derivative action involves a claim that Mr Bob Cooper, Mr David Cooper and Mr Zghari improperly diverted rights and business opportunities which properly belonged to DPL to MCashback so as to exploit them for their own benefit. The claims made in the derivative action fall outside the matters which I have to determine under the order for trial of the preliminary issue, and I therefore do not explore them further.
These legal proceedings were commenced in 2006, several years after the events to which they relate. The reason for this is that until 2006 it was not clear to the Claimants and investors in Fanmail that there was sufficient monetary value in the claims they wished to advance to merit the expense of taking legal proceedings. However, in 2006 they learned that the intellectual property rights then held by MCashback and the business opportunity which it was exploiting on the basis of them appeared to be very valuable. They then raised funds to bring these proceedings. In light of the passage of time between the events in issue and the trial, this is a case in which I have given particular weight to the contemporaneous documentation in assessing the evidence of the witnesses.
The factual background
Mr Burtenshaw was, at the material times, the principal partner in a firm of quantity surveyors which had originally been set up as P K Burtenshaw Associates in 1987. Over time the name of the partnership changed and it also established a group of related limited partnerships. The partnership's main business was undertaken through a corporate vehicle, Burtenshaw Associates Limited. For convenience I will refer to the partnership as “Burtenshaw Associates”. Burtenshaw Associates was originally established in Norwich and then expanded, with offices in other cities.
In 1999, as part of Burtenshaw Associates' expansion, it was decided that it would open an office in London. It was also decided that it would extend the range of services which it offered to include the recovery of capital taxation allowances in connection with property developments. Mr Zghari was a chartered surveyor with experience in the capital taxation allowance field. He was recruited by Mr Burtenshaw to head the new London office and started work for Burtenshaw Associates on 1 November 1999.
At about this time Mr Burtenshaw had come into contact with Mr Bob Cooper through their mutual interest in Norwich City Football Club (“NCFC”). Mr Bob Cooper was then the Chairman of NCFC. Burtenshaw Associates was engaged to carry out some quantity surveying and project management services for NCFC. Mr Burtenshaw and Mr Bob Cooper got to know each other well.
Mr Bob Cooper's background is in retailing. He joined J. Sainsbury plc (“Sainsbury's”) in about 1975 and remained with that company until 199In 1988, at the age of 39, he was appointed to the main board of Sainsbury's. Whilst working for Sainsbury's, he acquired very extensive knowledge of the retailing business. He also developed a close personal and working relationship with Delia Smith, the well-known cookery presenter, who was a consultant to Sainsbury's. In 1996 he joined the board of New Crane Publishing Limited which belonged to Delia Smith and her husband which, amongst other things, published the Sainsbury's magazine. Shortly after leaving Sainsbury's, in November 1998, he became the Chairman of NCFC and remained in that position until May 2002. Throughout his business career Mr Bob Cooper had been involved in developing and supporting new business ideas and products. That was an interest which he retained after leaving Sainsbury's.
Mr Zghari quickly demonstrated to Burtenshaw Associates that he had a good understanding of computer systems and software. His understanding of these matters was far in advance of Mr Burtenshaw and his partners. Alongside his work on capital allowances he demonstrated an interest in and a flair for applying his knowledge of computers and software to the creation of marketing instruments. In particular, he developed an email brochure for Burtenshaw Associates at a time when this was a distinct and innovative idea. Mr Burtenshaw showed this to Mr Bob Cooper who was impressed by it. Mr Bob Cooper was interested in the communication of brochures in an interactive format via email as a possible marketing tool to promote club events and fundraising using NCFC's fan base as an initial database from which individuals could be targeted via email.
Mr Burtenshaw and Mr Cooper discussed the possibilities that this form of email contact with football fans might have in relation to marketing football clubs and sport generally. To develop a business of this kind it would be necessary to have access to the details of fans held by football clubs on their own databases. If that could be achieved they thought that this form of marketing tool, combined with access to such databases, could become extremely valuable to outside organisations wishing to sell to this sector of the market as well as to the football clubs themselves. Mr Bob Cooper expressed interest in becoming involved with a new company to be set up to develop this business idea.
The company which was to be set up to do this was Fanmail. It was eventually incorporated on 29 November 2000. Mr Burtenshaw was appointed as a director and chairman. Mr Zghari was appointed as the other director. In August 2000 Mr Bob Cooper agreed to make a substantial investment of £100,000 in the company in return for 10% of the shares for himself and his wife (“Mrs Cooper”). He did not wish to become a director of it, because he did not have a great deal of time to devote to the business and it might also jeopardise his entitlement to Enterprise Investment Scheme tax relief in relation to his investment.
With a view to getting help with the promotion of the Fanmail business idea, Mr Bob Cooper introduced Mr Burtenshaw and Mr Zghari to Caroline Townley of Active Rights Management Limited (“ARM”). Ms Townley had experience in digital media and the management of sports rights and data and had contacts within the football league. She also was interested in the Fanmail business idea, for sports clubs to enter into some form of interactive engagement with their fan base through the medium of email. She thought it could have general application to sporting organisations worldwide.
In September 2000, according to Ms Townley's evidence, which I accept, Mr Bob Cooper offered her a 5% stake in Fanmail. This was on the basis that Ms Townley should subscribe a fairly nominal sum of £500 and would agree not to charge the company for her time or for the access she could provide to her network of contacts in the sporting world. Mr Zghari contacted Ms Townley to suggest that this equity stake would be raised to 10% subject to certain performance targets being met which were to be agreed. In fact it transpired that Ms Townley was issued with 8.79% of the issued shares in Fanmail at the outset. It is unclear why there was a departure from the terms originally proposed. However, the basic idea underlying her involvement is clear. She was to have an equity stake in the company so as to incentivise her to provide the company with the benefit of her experience, knowledge and contacts, so that if Fanmail and its business idea took off and became valuable, she would share in its success, which it was hoped she would help to create. Her shareholding was to be in lieu of payment for her services.
Mr Burtenshaw also took advice from Norman Wilson, an acquaintance who was a management consultant. On 18 July 2000 Mr Burtenshaw and Mr Zghari...
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