Idrees Hashmi v Paul Lorimer-Wing
| Jurisdiction | England & Wales |
| Judge | Richard Farnhill |
| Judgment Date | 02 February 2022 |
| Neutral Citation | [2022] EWHC 191 (Ch) |
| Docket Number | Case No: CR-2021-001454 |
| Court | Chancery Division |
In the Matter of Fore Fitness Investments Holdings Limited
And in the Matter of the Companies Act 2006
[2022] EWHC 191 (Ch)
Richard Farnhill
(sitting as a Deputy Judge of the Chancery Division)
Case No: CR-2021-001454
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES AND INSOLVENCY LIST (ChD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Steven Reed (instructed by Joseph Sutton Solicitors) for the Applicant
Mr George Hilton (instructed by Ashtons Legal) for the Respondent
Hearing date: 19 January 2022
APPROVED JUDGMENT
Richard Farnhill (sitting as Deputy High Court Judge for the Chancery Division): The Application
This application arises out of proceedings brought by the Petitioner (“Mr Hashmi”) against the First Respondent (“Mr Lorimer-Wing”) and the Second Respondent (“the Company”) under s. 994 of the Companies Act 2006 in which he seeks an order that Mr Lorimer-Wing purchase his shares in the Company. In the Defence and Counterclaim the Company asserts claims against Mr Hashmi for damages for breach of his duties as a director of the Company, breach of contract and/or pre-contractual misrepresentation and for rescission. Insofar as those claims are not pursued by the Company, Mr Lorimer-Wing seeks a declaration that his interests as a member of the Company have been unfairly prejudiced and permission pursuant to s. 996(2)(c) of the 2006 Act to pursue the Company's counterclaim in the name of the Company.
Mr Hashmi seeks the following relief:
i) That the Company's counterclaim be struck out pursuant to CPR 3.4(2)(b) (as being an abuse of process) and (c) (for being in breach of a court order).
ii) That Mr Lorimer-Wing's counter-petition be refused permission.
iii) An injunction restraining Mr Lorimer-Wing from causing or procuring the Company to participate in the petition or incur any costs (including legal costs) in relation to it.
iv) A mandatory injunction requiring Mr Lorimer-Wing to reimburse the Company for any costs paid by it in relation to the petition and this application.
v) Directions regarding the service of a Reply by Mr Hashmi.
Background to the application
The Company was incorporated by the First Respondent on 27 February 2019, at which time he was its sole director.
Starting from around the time of incorporation, the Petitioner was to develop software for the Company, initially without having a contract in place.
The Respondents assert that at some time around November 2019 Mr Hashmi was appointed Chief Technology Officer of the Company and that the Company, or Mr Lorimer-Wing on its behalf, orally agreed to pay Mr Hashmi £5,000 gross per full month of work undertaken by him (“the Oral Agreement”), along with a discretionary bonus arrangement (“the Bonus Agreement”). Although the existence and terms of these agreements may be contested by Mr Hashmi in due course, for the purposes of this application it is the Respondents' assertion that is relevant.
The parties agree that by March 2020 Mr Hashmi was already a holder of Ordinary A shares, although there is a dispute about the precise number. On 20 March 2020 Mr Hashmi participated as an investor in a fundraising for the Company, subscribing for 4,639 Ordinary A shares and 1,500 Ordinary B shares. As part of the fundraising all shareholders and investors entered into an investment agreement (“the Investment Agreement”) and the Company adopted new articles of association. The interpretation of those articles is at the heart of this application. Mr Hashmi was appointed as a director of the Company, as was Mr James Gilbert. The board of the Company therefore comprised Mr Lorimer-Wing, Mr Hashmi and Mr Gilbert.
It is the Respondents' case that at some time in August 2020 the Company entered into two further agreements. The first (“the Consultancy Agreement”) provided for payment to Mr Hashmi for work done before the Oral Agreement entered into force; the second (“the Collateral Agreement”) provided for the termination of the Consultancy Agreement on the date that the Oral Agreement commenced in November 2019. Again, the existence, terms and effect of these agreements will be a matter for determination in due course; what matters for this application is the assertion itself.
Disagreements started to arise by no later than December 2020 which led, on 2 March 2021, to Mr Lorimer-Wing writing to Mr Hashmi to state that he had been removed as a director of the Company, that he was deemed a Bad Leaver under the Leaver definitions in the articles and, as such, was deemed to have served a transfer notice in relation to his A Ordinary Shares and to have automatically offered all his B Ordinary shares to the Company. The validity of these steps is contested by Mr Hashmi and that dispute forms a central element of his unfair prejudice petition.
A TM01 form recording the termination of Mr Hashmi's directorship was filed at Companies House on 19 April 2021. Again, the validity of this form is contested by Mr Hashmi.
Mr Gilbert ceased to be a director of the Company on 13 June 2021. Since that time, Mr Lorimer-Wing has acted as the Company's sole director.
Mr Hashmi filed his unfair prejudice petition on 10 August 2021. On the same date a Case Management Order was issued by the court in the standard form. This provided, among other things, that:
“the Respondent(s) (save for the company) file and serve points of defence by 21 September 2021;
the Petitioner(s) file and serve points of reply (if so advised) by 19 October 2021;”
On 21 September 2021 the Respondents served their Points of Defence and Counterclaim. The Defence is based on the articles of association; the counterclaim references the Oral Agreement and the Consultancy Agreement and Mr Hashmi's statutory duties as a director to promote the success of the Company and to act with reasonable skill and care. However, the particulars of breach are headed “Particulars of Breach of Contract” and, while there is a reference to Mr Hashmi's statutory duties, all of the alleged breaches are contractual in nature. The loss, causation and damage section of the counterclaim refers only to the Oral Agreement and the Consultancy Agreement. The misrepresentation section refers expressly to the Misrepresentation Act 1967; under sections 2(1) and 2(2) of the 1967 Act, its provisions only apply to parties who have entered into a contract on the basis of the alleged misrepresentation.
The articles
Following the Investment Agreement the Company's articles of association were a mix of the Model Articles and bespoke articles agreed between the parties. As I have noted, this application turns heavily on the proper interpretation of those articles, and specifically on the relationship between three provisions. Articles 7 and 11 derive from the Model Articles:
“7.—(1) The general rule about decision-making by directors is that any decision of the directors must be either a majority decision at a meeting or a decision taken in accordance with article 8.
(2) If—
(a) the company only has one director, and
(b) no provision of the articles requires it to have more than one director,
the general rule does not apply, and the director may take decisions without regard to any of the provisions of the articles relating to directors' decision-making.
…
11.—(1) At a directors' meeting, unless a quorum is participating, no proposal is to be voted on, except a proposal to call another meeting.
(2) The quorum for directors' meetings may be fixed from time to time by a decision of the directors, but it must never be less than two, and unless otherwise fixed it is two.
(3) If the total number of directors for the time being is less than the quorum required, the directors must not take any decision other than a decision—
(a) to appoint further directors, or
(b) to call a general meeting so as to enable the shareholders to appoint further directors.”
Article 16 is bespoke:
“16.1 The quorum for meetings of the Board shall be two Directors one of whom must be an Investors' Director (if appointed) and one the Executive (if appointed as Director) unless such Investors' Director or Executive is unable to attend a Board meeting and has confirmed in writing (which may be by email) that he is satisfied that the Board meeting in question is quorate without him being present.
16.2 If a quorum is not present within half an hour from the time appointed for a board meeting because the Investors' Director (if appointed) or Executive (if appointed as Director) is not present, the Board meeting shall stand adjourned to the same day in the next week at the same time and place or to such other day and at such time and place as the Directors may determine and if at the adjourned Board meeting a quorum is not present within half an hour from the time appointed therefor because the Investors' Director (if appointed) or Executive (if appointed as Director) is not present, provided there are at least two Directors present then those Directors shall represent a quorum.
16.3 Model Article 11.2 shall be modified accordingly.”
The strike out application
Mr Hashmi's case rests on two bases:
i) Properly interpreted, the articles, and in particular Bespoke Article 16.1, require there to be two directors for a board meeting to be quorate for any purpose other than taking steps to appoint new directors. From 13 June 2021, when Mr Gilbert ceased to be a director, Mr Lorimer-Wing was the only director, such that he had no power to direct the Company to file a counterclaim. As such, the purported authorisation of the counterclaim was ultra vires and a misfeasance on the part of Mr Lorimer-Wing.
ii) In any event, the legal costs principle prohibits the Company...
To continue reading
Request your trial
-
Active Wear Ltd
...to the one taken by Mr Richard Farnhill sitting as a deputy judge of this division in Re Fore Fitness Investments Holdings Ltd [2022] EWHC 191 (Ch). This decision has given rise to the uncertainty principally prompting this 15 Fore Fitness arose out of unfair prejudice claims made under se......
-
Sole Director Companies ' Be Careful As You Go It Alone
...company in question has adopted the Model Articles (whether in whole or in part). The High Court judgments in Hashmi v Lorimer-Wing [2022] EWHC 191 (Ch) (also known as Re Fore Fitness Investment Holdings Ltd) and Re Active Wear [2022] EWHC 2340 (Ch) have presented the need for clarity on th......
-
2022 Half-year in review M&A legal and market developments
...Ltd, Isaac v Tan [2022] EWHC 20 23 (Ch))1 [2015] UKSC 71.2 Re Fore Fitness Investments Holdings Ltd, Hashmi v Lorimer-Wing & Anor [2022] EWHC 191 (Ch). 4White & CaseHeadcount te st for sche me of arrangeme nt where nominee shareholdersThe High Court has ag ain considered how to apply the he......
-
Can A Director Go It Alone? Very Possibly Not! - Poonam Melwani KC And Paul Henton
...Farnhill sitting as a Deputy Judge of the Chancery Division disagreed. In his judgment In Re Fore Fitness Investments Holding Ltd [2022] EWHC 191 (Ch) he expressed the view that "A provision in the articles requiring there to be at least two directors to constitute a quorum logically is a r......
-
Sole Director Companies Operating Under The Model Articles: Impacted By Ruling In Hashmi v Lorrimer-Wing [2022] EWHC 191 (Ch)
...get retrospective approval for past decisions. The High Court Judgement The recent High Court judgment in Hashmi v Lorrimer-Wing [2022] EWHC 191 (Ch) concluded that Article 7(2) of the Model Articles (for private companies limited by shares) should not override Article 11(2). Model Article ......