Hikari Miso (UK) Ltd v David Knibbs
| Jurisdiction | England & Wales |
| Judge | Sarah Worthington DBE |
| Judgment Date | 05 June 2023 |
| Neutral Citation | [2023] EWHC 1340 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: BL-2020-002146 |
[2023] EWHC 1340 (Ch)
Sarah Worthington DBE KC (Hon) sitting as a Deputy High Court Judge
Case No: BL-2020-002146
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (Ch)
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Mr Stephen Moverley Smith KC and Mr Edward Knight (instructed by Pillsbury Winthrop Shaw Pittman LLP) for the Claimant
Mr Graham Chapman KC and Mr Matthew Bradley KC (instructed by Tyr Law) for D1 and D2
and Mr Graham Chapman KC and Mr Matthew Bradley KC (instructed by Gateley PLC) for D3 to D17
Hearing dates: 8, 9, 10, 14, 15, 16 March 2023
FINAL JUDGMENT
Sarah Worthington DBE KC (Hon):
This case concerns the proper construction of a shareholder agreement, and a determination of whether there have been breaches of that agreement by any of the parties such as to trigger a compulsory buy-out of either the Claimant's or the First Defendant's shares. The only remedies sought by the parties are declarations in respect of these matters.
The parties to the dispute are all shareholders of R&R Tofu Ltd (the “ Company”). On 10 October 2016, the parties and the Company entered into a Subscription and Shareholders' Agreement (the “ SSA”) pursuant to which the Claimant, Hikari Miso (UK) Ltd (“ HMUK” or “ the Claimant”), purchased 32.8% of the shares of the Company. The Defendants between them own all the remaining shares in the Company.
Under the SSA, certain corporate decisions are characterised as “ Reserved Matters”, with the Company unable to take any action in relation to those matters without the prior written consent of the holders of either 75% or 70% of the Company's shares, depending on the matter in issue. The relevant provisions in the SSA and the Company's Articles are set out in the Appendix to this judgment.
The parties have provided a comprehensive Joint Statement of Issues for the Court. The Court's conclusions on those issues are listed at the end of this judgment. For present purposes these issues can be briefly summarised under four principal headings:
(i) How is shareholder consent to a Reserved Matter manifested?
(ii) How, if at all, are individual shareholders and their nominee directors constrained in their voting on Reserved Matters?
(iii) Which matters fall within the definition of Reserved Matters?
(iv) Are the facts such that either the Claimant, HMUK, or the First Defendant, Mr Knibbs (“ D1”), is in breach of the SSA such as to trigger the possibility of a compulsory buy-out of either the Claimant's or the First Defendant's shares?
The first three issues are almost entirely matters of construction applied to undisputed facts and aided by the relevant law on shareholder and director voting powers. The fourth issue requires those findings to be applied to the facts.
The Court was provided with a great deal of written evidence, including Board papers, minutes of Board meetings and emails between the parties and/or relevant third parties. Given the volume, it is impossible to rehearse exhaustively all the evidence put before me, but I endeavour to provide the essential background flavour to the dispute as well as referring to the evidence that is directly material to resolving the issues.
FACTUAL BACKGROUND
The Company's business is the production and distribution of tofu via its wholly-owned subsidiary, The Tofoo Company Limited. D1 and his wife, Ms Smith (“ D2”), initiated the purchase of the Company in January 2016, when its turnover was c. £500,000 p.a. They had ambitious growth plans, and effected the purchase with the help of family and friends, who all became “ the B Shareholders”.
Several months later, in October 2016, HMUK invested c.£505,000 in the Company and became a shareholder, with all the shareholders thereafter holding their shares pursuant to the SSA. The SSA was drafted by HMUK's lawyers and thereafter negotiated by the Defendants' lawyers. The Company is also a signatory.
The Claimant and D1 and D2 hold “A” shares in the Company and the Third to Seventeenth Defendants, the B Shareholders, hold “B” shares, as follows:
• the Claimant holds 32.8% in “A” shares;
• D1 and D2 each hold 20.24% in “A” shares, for a total of 40.48%; and
• the B Shareholders each hold in varying amounts the remaining 26.72% as “B” shares.
The Board comprises:
• D1 as managing director of the Company;
• D2 as executive director/commercial director of the Company;
• Mr Hayashi (“ H”) as non-executive director and chairman of the Company, and HMUK's nominated representative on the Board; and
• Mr York (D15) as non-executive director of the Company, and the Third to Seventeenth Defendants' nominated representative on the Board.
H is a Japanese businessman involved in the tofu and miso business in Japan, with plans to expand in the UK and Europe. He is the 80.8% beneficial owner of HMUK, which is itself wholly owned by a Japanese company called Hikari Miso Co., Ltd (“ Hikari Miso”), of which H is the President and Representative Director (i.e. the CEO). Mr Takashi Hirono is another HMUK director.
HMUK is the sole owner of Dragonfly Foods Limited (“ DFL”), which is another tofu products producer and distributor based in the UK. It produces a traditional, water-packed style of tofu popular in Japan, whereas The Tofoo Company product is a handmade artisanal style, marinated and more highly flavoured.
D1 and D2 are the husband-and-wife team providing the driving force behind the Company and its success.
As noted earlier, the SSA, in Schedule 3, lists certain Reserved Matters. The Company is unable to take any action in relation to those matters without the prior written consent of the holders of either 75% or 70% of the Company's shares, depending on the matter in issue. The SSA in Clause 6.1 then obliges the shareholders to procure that the Company complies with this restriction.
Since HMUK holds over 30% of the total share capital in the Company, decisions in relation to all Reserved Matters will require its prior consent.
Whilst the SSA provides (at Clause 6.1(a)) that the prior written consent of shareholders is required if decisions on Reserved Matters are to be taken, Clauses 6.1(a) and 6.2 provide for such consent in writing to be deemed to have been given in certain circumstances, including (among other things) if a shareholder's nominated director present at a meeting of the Company's Board has approved the relevant action at a Board meeting (Clause 6.2(a)).
Until 2020, the Company's decision-making was relatively uncomplicated. Both HMUK and H participated in taking decisions in relation to Reserved Matters without any prior written request for consent (a “ Request for Consent”) being issued. Instead, they took such decisions by means of the shareholders' appointed directors approving such matters within the context of the Company's Board meetings – as provided for in Clause 6.2(a) of the SSA (on the Ds' case), although notably these decisions were invariably minuted specifically and distinctively as decisions on Reserved Matters requiring shareholder consent (although without a completely standard form of words being used in every case).
From early 2020, coinciding with the outbreak of the Covid pandemic, the Parties fell into dispute about certain Reserved Matters and the respective obligations of shareholders and directors in relation these. HMUK maintained (and continues to maintain) that the provisions of the SSA confers upon it a veto on Reserved Matters by virtue of the size of its shareholding. The Defendants, by contrast, insisted (and continue to insist) that the directors' fiduciary/statutory obligations under the Companies Act 2006 oblige the directors to act only in the best interests of the Company, and the SSA obliges the shareholders to procure that their nominee directors act accordingly. By extension, the Defendants insist that the Shareholders are obliged to procure that their nominee directors disregard, and re-decide, the outcome of a shareholder vote on a Reserved Matter if their nominee directors would otherwise consider the transaction to be in the best interests of the Company.
During the course of the dispute, D1, purportedly on behalf of the Company (although this is a matter of dispute), obtained legal opinions from Queen's Counsel; HMUK did likewise. The respective opinions failed to resolve the dispute.
The dispute continued to the issue of these proceedings, initially seeking only declaratory relief as to the effect of the SSA, and now including questions of whether compulsory buy-out rights have been triggered.
WITNESSES
H, D1, D2 and Mr York all appeared as witnesses within a four-day period. In summarising their evidence I have collated the principal issues addressed in each cross-examination regardless of the order in which the matters emerged. I have omitted issues which are not material to the decisions I am required to make.
Mr Hayashi
As already noted, Mr Hayashi (H) is a non-executive director of the Company and HMUK's nominee. He owns 80.8% of the shares in Hikari Miso, which is the sole owner of HMUK. H is thus in effective control of both these companies, although he made the point that he did not try to force his way in the decisions of either. Before his involvement in these companies, he worked in the IT industry.
H gave evidence for one and a half days via interpreters and simultaneous translation. He was calm and composed, and...
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