Graham v Every
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice McCombe,Lord Justice Vos |
| Judgment Date | 27 February 2014 |
| Neutral Citation | [2014] EWCA Civ 191 |
| Docket Number | Case No: A3/2013/0271 |
| Court | Court of Appeal (Civil Division) |
| Date | 27 February 2014 |
Lady Justice Arden
Lord Justice McCombe
and
Lord Justice Vos
Case No: A3/2013/0271
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
Mr Stuart Isaacs QC
2012/2460
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Nicholas Stewart QC (instructed by Bookers and Bolton Solicitors) for the Appellant
Mr Andrew Butler (instructed by Hart Brown Solicitors) for the Respondents
Summary of the issues on this appeal and my conclusions
This is an appeal by Mr Jason Lorimer Graham, the petitioner in these proceedings, and a cross-appeal by Mr Simon Every, Mr Frederick Olsson, Mr Alexander De Pommes, Mr Nigel Carande and Mr David Rymer, the individual respondents in the petition, against the order dated 18 January 2013 of Mr Stuart Isaacs QC, sitting as a deputy judge of the Chancery Division allowing (in part) the individual respondents' application to strike out the petition. The parties are the present or former shareholders in Below Zero London Ltd ("the Company"), which carries on the business of owning and operating an "ice bar" (that is, a bar where the furniture, walls and glasses are made from ice), and a restaurant. Originally, some of the parties were directors of the Company but Mr Graham was removed as director in 2009.
Following his removal, Mr Graham presented a petition for relief from unfair prejudice under section 994 of the Companies Act 2006. This provision is very well known and I need only set out sub-section (1):
"(1) A member of a company may apply to the court by petition for an order under this Part on the ground — (a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial."
Mr Graham's petition contains allegations relevant to this appeal as follows:
• the "understanding" allegation: that the Company had been formed on the basis of a common understanding between the parties, recorded in part in written Heads of Agreement of April 2005;
• the "fitting out" allegation: that Mr Every and Mr De Pommes had failed to manage the cost of the fitting out of the Company's business premises by Willowmead Ltd ("W Ltd") and another company, Straight Impact Ltd ("S Ltd"), also associated with Mr Every, Mr Rymer and Mr Carande;
• the "exclusion" allegation: that Mr Graham was excluded from the management of the Company;
• the "loan agreements" allegation: that the respondents caused the Company to enter into "extortionate loan agreements" under which the Company borrowed money from W Ltd for the benefit of certain directors;
• the "non-compliant share purchase" allegation: that Mr Every bought the shareholdings of Mr Rymer and Mr Carande without complying with a term of the Heads of Agreement that if a shareholder wished to sell his shares, he was to offer them pro rata to the other shareholders. I refer to this transaction below as " the non-compliant share purchase" and to this term as " the pre-emption agreement." Mr Graham contends that, if he had been offered his rateable share of the shareholdings of Mr Rymer and Mr Carande, he would have become a 27% shareholder.
Mr Graham essentially contends that the judge was wrong to strike out certain paragraphs of the "understanding" allegation and the whole of the "non-compliant share purchase" allegation. The respondents contend that the judge should have struck out the petition in its entirety.
For my part, a key consideration in my decision on the proper disposal of this appeal is that Mr Nicholas Stewart QC, for Mr Graham, candidly accepts that Mr Graham's petition fails to give a large number of the particulars which it ought to give. Mr Stewart has agreed that Mr Graham should give the further particulars which he ought to give within a defined period. In those circumstances, provided that the agreement is appropriately incorporated into an order of the court, I would be reluctant to make an order striking out this petition on the grounds of any pleading point unless it was inevitable that the allegation would fail.
In my judgment, for the reasons given below, the judge was right not to strike out the whole of the petition but he should have allowed to stand the whole of the "understanding" allegation, as it was sufficiently pleaded. In addition, in my judgment, the judge was wrong to strike out the "non-compliant share purchase" allegation at this stage. As I shall explain, it may involve the unfairly prejudicial conduct of the Company's affairs when the petition is properly particularised.
The respondents' case on their cross-appeal principally turns on the following points: they contend that Mr Graham's petition is an abuse of the process of the court because (1) their offer by email sent on 7 January 2010 (" the offer") was a reasonable offer to buy out his shares; (2) Mr Graham's allegations about the Heads of Agreement have no prospect of success in law because he never communicated his acceptance of the terms of that document and (3) his principal allegations are so lacking in particularity that the petition fails to make clear the case which the respondents have to meet.
In my judgment, for the reasons given below, the respondents' offer did not make it unreasonable for Mr Graham to pursue his petition. In addition, in my judgment, there is an arguable issue as to whether Mr Graham communicated his acceptance of the Heads of Agreement. Furthermore, there is no difficulty in identifying the nature of the wrongdoing which he alleges.
The next step will be for Mr Graham to provide particulars of his case. The order of the court would, if my Lords agree, leave it open to the respondents to take such further steps as they may be advised in the light of the particulars which Mr Graham gives. Mr Graham has therefore every incentive to give the fullest particulars he can to ensure that the petition is pleaded in a properly defined way. The respondents realistically agree that they have to buy out Mr Graham's shares and that is the relief he seeks on his petition. The only question is how his shares should be valued, taking appropriate account of the matters which he raises in his petition. The parties need to settle down now to finding a way of valuing Mr Graham's shares.
Procedural history and non-compliance with orders for disclosure
The respondents made their application to strike out the petition because of their concern about the burden of complying with orders of the court for disclosure. Meanwhile they have not complied with these orders. The petition was presented on 16 March 2012 and amended on 12 June 2012. On 1 June 2012, Mrs Registrar Derrett made an order for standard disclosure. Points of defence were served on 12 July 2012. The respondents served a request for further information (" the further information request"). On 20 September 2012 Mr Graham served replies (" the further information") but the respondents were not satisfied that he had given proper particulars. On 24 October 2012 the respondents applied for an order striking out the petition. On 1 November 2012, Mr Registrar Nicholls confirmed the order for standard disclosure.
The court is well aware that it is often very burdensome for litigants to comply with orders for disclosure. But, as Mr Andrew Butler, for the respondents, fairly accepts, the proper course for a litigant, who wishes not to comply with an order of the court, is to apply to the court for an extension of time or stay or even appeal. In this case the respondents failed to appeal the order of Mrs Registrar Derrett. They sought to appeal the order of Mr Registrar Nicholls to the High Court but Proudman J refused permission. However, they could still have asked for an extension of time or stay pending their application to strike out. They did nothing following their unsuccessful application for permission to appeal until after the order made by the judge, which was long after the date on which the orders of the Court required them to give disclosure. Then they applied to Ms Registrar Barber at a case management conference to vary the order of disclosure but she declined to make an order in the light of this appeal. So the position is that the respondents remain in default of court orders to give disclosure. They maintain that their default was not contumelious. There is no application to us about that and so I say only this, lest there should be any doubt in the respondents' minds; this is a serious matter. I am grateful to Mr Butler that he was prepared to recognise that.
(1) The "understanding" allegation
Mr Graham appeals against the judge's order to strike out subparagraphs (f),(g) and (j) of paragraph 5 of his petition, which constitute part of the "understanding" allegation. The opening words and these subparagraphs are as follows:
"The Agreement
5 From the outset, the Defendants and the Claimants (together referred to below as "the Joint Venturers") had worked on the basis of a common understanding as to how the business of the Company including in particular the development and operation of the Icebar was to be run. By April 2005, that understanding had become an agreement ("the Agreement") which addressed the manner in which the Company and its business would be run and included certain specific rights and obligations between the Joint Venturers in respect of...
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