Franbar Holdings Ltd v Patel and Others

Hearing dates : 12 th and 13 th June 2008

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.

I have before me a number of applications in proceedings which have as their substance disputes between Franbar Holdings Ltd (“Franbar”) and Casualty Plus Ltd (“Casualty Plus”) in relation to the affairs of Medicentres (UK) Ltd (“Medicentres”).

Three sets of proceedings have been issued. The first is a claim by Franbar against Casualty Plus for breach of a shareholders' agreement dated 28 July 2005 (“Shareholders' Agreement”). The second is a petition under section 994 of the Companies Act 2006 by Franbar against Casualty Plus. Two directors of Medicentres, Mr Ketam Patel and Dr Johan du Plessis have been joined as respondents to the petition, but the principal head of relief is an order against Casualty Plus for it to purchase Franbar's shares in Medicentres. The third is a claim by Franbar against Mr Patel, Dr du Plessis and Medicentres (together “Defendants”), which Franbar seeks permission to continue as a derivate claim because it seeks a remedy on behalf of Medicentres. In each of the three sets of proceedings, the substantive allegations are the same.

The application for permission to continue the derivative claim is the first matter with which I must deal. The other outstanding applications relate to permission under section 182 of Finance Act 1989 to disclose and/or rely upon material arising from an Inland Revenue investigation and permission pursuant to rule 7.31 of Insolvency Rules 1986 to inspect and take copies of the court file. The application notice also seeks an order for consolidation of the derivative claim with the section 994 petition, to be heard together with the shareholders' action. All parties are now agreed that, if permission is granted, it is appropriate for all proceedings to be heard together.

Franbar also indicated in its skeleton argument that it sought an order that it be indemnified by Medicentres in respect of its costs if I were to give permission to continue with the derivative claim. This application was not in fact made in Franbar's application notice and, during the course of the hearing, Mr David Matthias Q.C., who appeared for Franbar, informed me that Franbar did not wish to pursue it on the basis that it could not show that an interim order was genuinely needed in accordance with the principles considered by Walton J. in Smith v. Croft [1986] 1WLR 580.

Before expressing my conclusions on the application for permission to continue the derivative claim I should say a little about the background. Medicentres was established to provide primary healthcare and medical services and between July 2001 and July 2005 it was wholly owned by Franbar. At the end of July 2005 Franbar sold 75 per cent of the shares in Medicentres to Casualty Plus. At the same time Franbar and Casualty Plus entered into the Shareholders' Agreement which, amongst other matters, granted Franbar an option to sell its remaining shares in Medicentres to Casualty Plus and granted Casualty Plus an option to call for those shares, in each case at a price of 9 times Medicentres' adjusted EBITDA, as derived from its most recent audited accounts. The put option is exercisable on various dates between 31 March 2007 and 31 March 2012. The call option is exercisable on various dates between 31 March 2009 and 31 March 2012.

It seems that, by the time of the Shareholders' Agreement, Medicentres had branches at Euston, Victoria, Waterloo, Paddington and Cannon Street railway stations and at a number of other locations in central London. It is of some significance to Franbar's case that Medicentres had an established presence at those railway stations and also that it had established relationships with Network Rail and a number of train operating companies for whom it supplied medical services.

The Shareholders' Agreement made detailed provision for the regulation of a number of other matters relating to the continuation of Medicentres' business. Casualty Plus was entitled and obliged to appoint and maintain two directors and was entitled to appoint a third director as a permanent chairman. The directors of Medicentres initially appointed by Casualty Plus were Dr du Plessis and Mr Sayed Jaffery (then the chairman of Casualty Plus). I am not sure whether Casualty Plus exercised its contractual right to appoint a majority of the board, but I will assume for present purposes that, in the events that occurred, those directors appointed by it had at least de facto control of Medicentres' affairs from July 2005.

Franbar was required by the Shareholders' Agreement to appoint and maintain Mr Karim Lalani in office as a director and was entitled to appoint one other director. In the event, he was so appointed and his executive function was to act as property director, a job which he carried out on a part time basis. From shortly after the Shareholders' Agreement, the other director appointed by Franbar was Mrs. Shelina Lalani; she was replaced by Mr Mark Olbrich in May 2007. The Shareholders' Agreement also made a number of matters reserved shareholder matters so that they could not be altered without the unanimous consent of Franbar and Casualty Plus.

In May 2007, Mr Jaffrey, who had been a director of both Casualty Plus and Medicentres and its Chief Executive Officer ceased to carry out any executive responsibilities and subsequently (in August) he resigned as a director. His replacement, appointed by Casualty Plus was Mr Patel. He was appointed on 31 May 2007. It is Franbar's case that the appointment of Mr Patel acted as the principal catalyst for the disputes which have arisen between Franbar and Casualty Plus.

I must now explain in outline the shape of the case and summarise the allegations made by Franbar and the answers to those allegations advanced by Casualty Plus. I do so by reference to the case as pleaded in the derivative claim. In substance, however, these allegations are or will be set out in exactly the same terms in the section 994 petition and the shareholders' action, albeit that in the derivative claim they are pleaded as breaches of identified duties owed by Mr Patel and Dr du Plessis to Medicentres. Indeed the main evidence relied on by Franbar in support of this application (a statement by Mr Lalani) was prepared for use in the section 994 petition, in which, as I have already mentioned, the principal relief sought is an order against Casualty Plus for it to purchase Franbar's shares in Medicentres.

The first complaint (or series of complaints) relates to the diversion of business opportunities from Medicentres to Casualty Plus. This is said to have happened at four separate units proposed for St Pancras Station, Canary Wharf, Waterloo Road and Aldgate. Franbar contends either that these units were or should have been intended for Medicentres or (in the case of Aldgate) that the proposal would have had the effect of diverting business away from a Medicentres unit at Fenchurch Street.

The Defendants' answer to the complaints in relation to St Pancras is that Medicentres could not afford the fitting out costs of the unit without further loans from Casualty Plus the terms of which could not be agreed by the parties, that there was a suggestion that Casualty Plus should take a head lease instead, but that in the event the acquisition did not proceed. This they say means that there was no breach of duty and no loss was sustained by Medicentres. As to the complaint in relation to Canary Wharf, the Defendants say that Medicentres never intended to take the unit, in any event without entering into joint venture arrangements with a third party and that, in the events that occurred, the lessor withdrew. They say that the allegations in relation to Waterloo Road do not disclose a wrong at all.

The position in relation to Aldgate is a little more complicated. The complaint is that Casualty Plus has developed a proposal to open a new branch at Aldgate for the purpose of treating persons currently treated at the Medicentres' Fenchurch Street branch. The Defendants deny that there is any poaching of patients involved, as the branches will offer different types of medical services. They say also that what has occurred is a wholly unexceptional rearrangement of group facilities, because two nearby Medicentres units at Cheapside and Eldon Street have had substantial recent investment committed to them.

The second category of allegation relates to the role of Mr Lalani. He is said to have been suspended with a view to improving the ability of Mr Patel and Dr du Plessis to divert business from Medicentres and drive down its share price with the actual or constructive knowledge of Casualty Plus. The continuation of Medicentres' business in the absence of Mr Lalani is said to have damaged Medicentres by depriving it of his skill and expertise. The Defendants claim that the suspension of Mr Lalani was justified because of his misconduct. They list a whole series of matters which are said to justify the suspension, most of which, if established, would amount to breaches of duty by Mr Lalani to Medicentres. It is also said that the exclusion of Mr Lalani can only be a...