Gareth Gerald McConomy and Another v Ase Plc and Another
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Stephen Davies |
| Judgment Date | 26 January 2017 |
| Neutral Citation | [2017] EWHC 92 (Ch) |
| Date | 26 January 2017 |
| Court | Chancery Division |
| Docket Number | Case No: B31MA012 |
[2017] EWHC 92 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
Manchester Civil Justice Centre,
1 Bridge Street West, Manchester M60 9DJ
His Honour Judge Stephen Davies
SITTING AS A JUDGE OF THE HIGH COURT
Case No: B31MA012
Mr Mark Harper QC & Mr Aidan Reay (instructed by A&L Goodbody, Solicitors, Belfast) for the Claimants
Mr Giles Maynard-Connor (instructed by Gateley plc, Solicitors, Manchester) for the Defendants
Hearing dates: 21–25, 28–29 November, 13 December 2016.
JUDGMENT APPROVED
| Section | Topic | Paragraphs |
| 1. | Introduction | 1 – 9 |
| 2. | The Parties and the Agreements | 10 – 31 |
| 3. | The Witnesses | 32 – 45 |
| 4. | Variation / Waiver of the SLA | 46 – 65 |
| 5. | Border Cars | 66 – 89 |
| 6. | Oldham Motor Co | 90 – 97 |
| 7. | Magna Motors | 98 – 103 |
| 8. | Heaton Park Garage Limited | 104 – 106 |
| 9. | GGT Estates | 107 – 116 |
| 10. | October 2014 — the request to issue credit notes and re-issue invoices | 117 – 127 |
| 11. | November 2014 – the meeting of 13 November 2014 and subsequent events leading up to the termination notices | 128 – 145 |
| 12. | Was WLT entitled to terminate the SLA for repudiatory breach on 19 December 2014? | 146 – 174 |
| 13 | Was Mr McConomy entitled to terminate the shareholders agreement for breach on 19 December 2014? | 175 – 181 |
| 14. | Events subsequent to the letters of termination – ASE's counterclaim | 182 – 188 |
| 15. | WLT's monetary claims against ASE under the SLA | 189 – 198 |
| 16. | WLT's claim against Mike Jones for breach of director's duty | 199 – 200 |
| 17. | Conclusions | 201 – 202 |
Introduction
This case involves a claim and a counterclaim arising out of a joint venture for the provision of capital tax allowance services. In short, the first claimant, Mr Gareth McConomy, a specialist in providing such services, entered into an agreement with the first defendant (referred to as "ASE"), an accountancy and consultancy practice specialising in serving the automotive industry, to provide capital allowance services to – amongst others — clients of ASE, through the medium of the second claimant (then known as White Label Tax Limited, and thus referred to as "WLT").
The terms of the joint venture were to be found in two contracts. The first contract was the shareholders agreement relating to WLT and entered into between Mr McConomy (who was to be the founder director and a 51% shareholder) and ASE (who was to be a 49% shareholder). The second defendant, Mr Michael Jones (I shall refer to him as Mike Jones to distinguish him from his father and his brother, who also feature in the case), a director and the chairman of ASE, was to be the other director of WLT. The second contract was a service level agreement (referred to as "the SLA") entered into between WLT and ASE, which regulated as between them the terms under which the capital allowance services were to be provided to ASE's clients.
In summary, the claimants claim that ASE breached the terms of the SLA by entering into arrangements with clients in 5 specified cases which were contrary to the terms of the SLA in that WLT's advance consent to non-standard terms was not sought or obtained, and which were for its own interests, and by failing to pay WLT what was due under the SLA. The claimants claim that this entitled WLT to terminate the SLA, and also placed ASE in breach of the shareholders agreement, with the result that Mr McConomy was entitled to invoke the compulsory buy out provisions of the shareholders agreement.
Thus WLT seeks payment of sums said to be due from ASE under the SLA and Mr McConomy seeks a declaration that he is entitled to invoke the compulsory buy out provisions of the shareholders agreement.
WLT also seeks damages or equitable compensation against Mike Jones for alleged breach of his statutory duty to WLT as its director as regards the entering into of arrangements with ASE's clients in relation to the 5 specified cases of which it complains as against ASE.
The defendants' case, in summary, is that: (a) the arrangements made with their clients about which WLT complains were made in accordance with the terms of the SLA as varied by mutual agreement, and for perfectly good commercial reasons with which Mr McConomy agreed at the time, or would have agreed had he been asked, so that the complaints are unjustified; (b) WLT was paid in accordance with the terms of the SLA also as varied by mutual agreement, and Mr McConomy never complained about late payment; (c) WLT was prepared to and did write off the difference between the amounts invoiced and the amounts due under the SLA as varied; (d) in the circumstances, Mr McConomy and WLT waived what might otherwise have been breaches of contract if, for any reason, the variations were ineffective; (e) further and in the circumstances insofar as there were breaches they were neither repudiatory as regards the SLA nor material as regards the shareholders agreement or, if they were repudiatory as regards the SLA, it was nonetheless affirmed by WLT; (f) the contractual conditions precedent to termination of the SLA or the shareholders agreement were not met; (g) insofar as there is a claim for damages in relation to the arrangements with clients complained of, it is a nominal claim because WLT would have agreed the non-standard terms if asked anyway; (h) there is no basis for holding Mike Jones liable as director of WLT since he was not directly involved in the negotiation or agreement of the arrangements complained of and since the non-standard terms were agreed in good faith and for what was genuinely believed were the best interests of both ASE and WLT.
I have heard evidence over 7 days and have had the benefit of detailed and helpful written opening and closing submissions, supplemented by oral submissions on day 8, from Mr Mark Harper QC and Mr Aidan Reay for the claimants and from Mr Giles Maynard-Connor for the defendants, and I am extremely grateful to them all, as I am to the respective solicitors for the efficient preparation of their respective clients' cases and the trial bundles.
I circulated my written judgment in draft on 4 January 2017. Mr Maynard-Connor provided a list of suggested errata, agreed by Mr Harper and Mr Reay, for which I am grateful. On 13 January 2017 Mr Harper and Mr Reay also provided a list of points on the draft judgment where they submitted that it was appropriate, in accordance with the practice endorsed by the Court of Appeal, that I should consider giving further reasons and/or further addressing points where it was said that I had fallen into error. It was agreed between counsel that Mr Maynard-Connor should be given the opportunity to reply before I decided whether and if so what amendments to make. My revised draft judgment was therefore produced with the benefit of both the points made by Mr Harper and Mr Reay and Mr Maynard-Connor's responses made on 20 January 2017, although I have only added to or amended the judgment where I consider it necessary or appropriate to do so. As will be apparent, I have not changed my views or the substance of my judgment in consequence of the matters raised by Mr Harper and Mr Reay.
My conclusions appear at section 17 below, and my reasons are set out below.
The Parties and the Agreements
Mr McConomy, a surveyor by qualification, has developed a niche in the provision of capital allowance services, which in the more complex cases benefit from specialist surveying and accountancy expertise. In short, businesses are of course entitled to set off qualifying capital expenditure against tax due for the year in which the expenditure has been incurred. In the more straightforward cases the accountants to and auditors of the company concerned will ascertain the relevant capital expenditure incurred in that year and include it in the relevant accounts and returns. However the client may benefit from more specialist surveying or accountancy expertise where more complex questions may arise as to what is and what is not qualifying expenditure and the valuation and allocation of that qualifying expenditure. Furthermore, it may happen that a company has not claimed some or all of the qualifying capital expenditure which it might have claimed in previous years. In such cases it is possible to make historic claims, and these tend to be undertaken by specialist capital allowance consultancies, often willing to act on a contingency basis.
Accountancy practices view these historic capital allowance services as valuable, not just because they are lucrative in themselves but because they may be a good "door-opener" to other more regular repeat work such as audit and general tax work.
ASE is a specialist accountancy and consulting practice, serving almost exclusively the automotive industry. It was formed in 1975 by Mr Trevor Jones and has grown into a very substantial business, with a group turnover of around £16M and around 240 employees in 14 offices worldwide. Its main office is in Manchester. It is still a family owned business and both Trevor Jones' two sons Mike Jones and Robert Jones are directors (Mike Jones being chairman and Robert Jones being chief executive officer) and work on a full time basis in the business.
Mr McConomy was employed by ASE as a tax manager in September 2010 to provide capital allowance services but fairly soon decided that he would prefer to work for himself. Following discussions with Robert Jones and Mike Jones it was agreed that it would suit both parties to set up a joint venture capital allowance services consultancy company. The plan was that...
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Mr T Benn v MD Building Services Ltd: 1400558/2023
...varied either expressly (in writing or orally) or variation can be implied by the parties’ conduct. In McConomy v ASE plc and another [2017] EWHC 92 (Ch), the High Court concluded that in order for a contract to be varied, it is necessary to show “a clear and consistent pattern of behaviour......