Hale v Waldock and Metropolis Motorcycles Ltd

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.

Hearing dates: 4 ^th, 5 ^th, 6 ^th, 7 ^th, 10 ^th, 11 ^th, 12 ^th, 13 ^th, & 17 ^th October 2005 1 ^st November 2005

Introduction

This is a petition brought under Section 459 of the Companies Act 1985 by Mr Andrew Hale, a shareholder in a company known as Metropolis Motorcycles Limited. The other shareholder is the first respondent, Mr Ian Waldock. Mr Hale owns 42% of the share capital; Mr Waldock owns 58%. Mr Hale's complaint is a familiar one in these petitions, namely that he has been excluded from management and from financial benefit in the company, and he says that that is unfair in the circumstances. It is slightly unusual in that he says the unfairness starts in the circumstances in which he became a shareholder in the company in the first place. In order to deal with all this it is necessary to go back into the history of the relationship between Mr Hale and Mr Waldock.

The Background and the Facts

In the factual account that follows any recited fact should be taken as being a finding of fact unless the contrary appears from the context. In making my findings I have taken into account my assessment of the credibility of the witness which I deal with in a later section of this judgment.

Both Mr Hale and Mr Waldock had an initial background in the motorcycle trade. They went into partnership with each other in 1989, trading as Scootabout Sales. This partnership lasted about 5 years, when they entered into a new partnership with a Mr Batcheler, trading under the name Metropolis Motorcycles Limited. The shares of Mr Waldock, Mr Hale and Mr Batcheler in the partnership were 51%, 38% and 11% respectively. The partnership's business was motorcycle sales, maintenance, servicing and repairs. They each had their own prime areas of responsibility in the business. Mr Waldock directed and controlled the business and he ran the sales department. Mr Hale ran the rider training department. Mr Batcheler ran the service and spares side of the business. Apparently with an eye to the future, the company was incorporated in 1994. It had 100 shares and the shares were allotted in the same proportion as the partnership shares, that is to say 51, 38 and 11 shares to the three shareholders respectively. However, nothing was done about transferring the business of the partnership into the company for some years (until 2001) as will appear. In August 1997 Mr Hale's day to day involvement in the partnership got much less, because he moved to Wales for personal and domestic reasons. In fact, there were discussions about his complete withdrawal from the partnership, and a draft deed of retirement was prepared. However, in April 1998 Mr Hale came back on the scene and asked to come back into the business. It was agreed he would have certain slightly different areas of responsibility. His return precipitated Mr Batcheler's retirement from the partnership. He wished to move on, and was in fact not entirely happy about Mr Hale's return. Mr Waldock negotiated the terms on which Mr Batcheler left; Mr Hale had little or nothing to do with them. Mr Batcheler's interest was acquired by Mr Waldock and Mr Hale, so that Mr Waldock and Mr Hale acquired 57.3% and 42.7% of the partnership respectively (later rounded to 58% and 42% respectively) and Mr Batcheler's shares in the company were transferred so that the same 58/42 per cent division obtained.

The partnership prospered. By 1998 it had over 100 employees and a turnover of £10m, which Mr Hale says was the largest turnover of a motorcycle shop in the UK. New premises were acquired. One of those new premises were premises at Northfields Avenue, Ealing. A new shop was opened there. The freehold was actually acquired during the time that Mr Hale was less active in the partnership and living in Wales. It was acquired in the names of Mr Waldock and Mr Batcheler. For a time there was a dispute as to whether it was partnership property, but in due course, and in the course of proceedings brought to determine the point, Mr Waldock conceded that it was. That has given rise to a costs application in those other proceedings which I am asked to determine and to which I will return later.

Stepping back in time for a moment, in 1996 and 1997 Mr Hale's domestic circumstances meant that he had to spend time with his family in Wales. During this time he spent only 2 working days a week, or later 4 days per fortnight, in the business. In the first half of 1997 there were negotiations with a view to putting in place a formal partnership deed. For a period these negotiations coincided with negotiations for the retirement of Mr Hale, which on its face is a little puzzling, but the explanation of Miss Lewis, who was in charge of the partnership's administration, was that Mr Hale wanted to get the formalities of the partnership sorted out before a dissolution. Mr Hale instructed his own solicitors, and the terms of a specific partnership deed were under negotiation. It was never finalised, but one important thing came out of those negotiations. Mr Waldock wanted to have clauses in the partnership deed which gave him a great deal of control over the management of the business, and a certain vetos. These seem to have been accepted in principle by Mr Hale. The details do not matter, but what is significant is Mr Hale's acceptance that Mr Waldock had in effect management control of the business, albeit in a context in which Mr Hale was perhaps going to retire anyway. Mr Hale accepted in cross-examination that at the time he was happy for Mr Waldock to have control over all major decisions. This reflected the way that the business was actually run, and is in effect what has happened ever since.

From mid-August 1997 Mr Hale went to live in Wales and effectively had nothing to do with the business for some months. During this period the affairs of the partnership were under the control of Mr Waldock and Mr Batcheler. As well as continued negotiations for the partnership deed (pursued to a limited extent) there were also the discussions and negotiations about the possible retirement and buyout of Mr Hale, but they came to nothing, and during this period Mr Hale continued to receive periodical drawings from the partnership. Unfortunately his marriage failed and in April 1998 he returned to London. There is a dispute on the evidence as to whether Mr Hale asked to come back in 1998 because his marriage had broken down (Mr Waldock's evidence) or whether he was invited back by Mr Waldock (Mr Hale's evidence). I prefer the evidence of Mr Waldock in this respect – it is more plausible and it is also supported by the evidence of Mr Batcheler and Miss Lewis. Mr Hale did that, but for some months after his return he did not do much (partly, no doubt, because of his emotional state). Within 5 or 6 months he had found, or been given, some sort of new role (it is unnecessary for me to resolve a dispute as to whether this was done in a matter of weeks or in a matter of months), which was to set up a website and a Triumph owners' club.

Mr Hales' arrival back at the partnership led to Mr Batcheler's departure shortly thereafter in 1998. He left partly because of his views of Mr Hale's conduct in the partnership (he was galled by the fact that Mr Hale was not working full time while still drawing his full partnership share) and partly because he wanted to move on anyway. Mr Waldock carried out all the negotiating with Mr Batcheler, and when he left his share accrued to Mr Waldock and Mr Hale in the manner and proportions referred to above. Mr Waldock was in charge of the day to day affairs of the partnership, and he was also the driving force behind the strategic decisions as well. To that extent he was the dominant partner. It was a matter of complaint by Mr Hale that Mr Waldock did not discuss these matters with him, or at least not enough. Mr Hale was finding it difficult to find a role in the business, and his attendance at the business premises became less and less. He told me that he was there for most of most working days, but the evidence of Mr Hale and of Ms Lewis, the manager of the business, was that he was not. I prefer the latter evidence.

This was the background to a meeting that took place on 5th October 2000 between Mr Waldock and Mr Hale. This meeting was, I find, intended to clear the position between the partners which was a source of tension between them personally and, to some extent, in the business where employees could see that one partner was present and one was (largely) not. The meeting is important for the purposes of the present action because it sought to regulate the relationship of the partners at a time when incorporation was being actively pursued, and it was clearly intended to regulate their position in the company when trading as well. That was not explicit, but it was clearly implicit. The content of the meeting clearly impinges on some of the complaints that have been made in this petition.

The pattern of the partnership drawings was that hitherto the partners had taken monthly drawings on account of profits...