Interactive Technology Corporation Ltd (Claimant) (1) Jonathan Ferster (Defendants) (2) World Online Software N.v (a company incorporated in Curaçao) and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morgan |
| Judgment Date | 15 November 2016 |
| Neutral Citation | [2016] EWHC 2896 (Ch) |
| Docket Number | Case No: HC-2014-000256 Case No: HC-2016-000209 |
| Court | Chancery Division |
| Date | 15 November 2016 |
[2016] EWHC 2896 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building,
Royal Courts of Justice
Fetter Lane, London, EC4A 1 NL
AND
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF INTERACTIVE TECHNOLOGY
CORPORATION LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006
AND
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Mr Justice Morgan
Case No: HC-2014-000256
Case No: 1052/2015
Case No: HC-2016-000209
Alan Gourgey QC and Nigel Dougherty (instructed by DAC Beachcroft LLP) for Interactive Technology Corporation Limited, Warren Ferster and Stuart Ferster
Andrew Thompson QC, Ben Shaw and Chantelle Staynings (instructed by Herbert Smith Freehills LLP) for Jonathan Fersterand the Second to Eleventh and Thirteenth and Fourteenth Defendants in the Company's Claim
Hearing dates: 23, 24, 27–30 June, 1, 4–8, 11–14 and 20–21 July 2016
Judgment Approved by the court for handing down
(subject to editorial corrections)
| Heading | Paragraph Number |
| Introduction | 1 |
| The three companies at the centre of the dispute | 6 |
| Other companies | 13 |
| The relevant history | 34 |
| The procedural history and other matters | 102 |
| The financial documents | 134 |
| The matters in dispute | 145 |
| What was the arrangement in 2004/2005? | 147 |
| What was the arrangement in 2007? | 158 |
| The purported effect of the APA and the SSA | 165 |
| Is ITC bound by the APA and the SSA? | 169 |
| Jonathan's motive for entering into the APA and the SSA | 192 |
| Other matters in relation to the APA and the SSA | 219 |
| Issues as to ITC's assets | 223 |
| Jonathan's remuneration | 229 |
| Jonathan's expenses | 240 |
| The Trust Claim | 261 |
| The section 994 petition | 266 |
| The first criticism | 268 |
| The second criticism | 269 |
| The third criticism | 270 |
| The fourth criticism | 271 |
| The background to the fifth to tenth criticisms | 272 |
| The fifth criticism | 283 |
| The sixth criticism | 284 |
| The seventh criticism | 285 |
| The eighth criticism | 286 |
| The ninth criticism | 287 |
| The tenth criticism | 288 |
| The eleventh criticism | 289 |
| The twelfth criticism | 291 |
| The thirteenth criticism | 304 |
| The questions arising under the statutory provisions | 306 |
| Discussion and conclusions | 311 |
| The overall result | 335 |
Introduction
This case concerns three brothers, Warren, Stuart and Jonathan Ferster and the various corporate entities with which they were connected. Warren is the eldest brother and Jonathan is the youngest. The three brothers have been involved in business together for many years. They were first involved in Gaynor (Packaging Film) Ltd, then Coral (Packaging Film) Ltd and then Coral Products Ltd, later Coral Products plc. During this period, the shares which they each held in these companies were the same and their remuneration was broadly similar. Jonathan voluntarily left Coral Products plc in 2007 to manage the online gaming business with which this litigation is concerned. Warren and Stuart left Coral Products plc in 2014 but their departure was not entirely voluntary. The brothers live near to each other in Manchester and they worship at the same synagogue.
The present disputes spring from arrangements made between the brothers in 2004 and 2005. In particular, a company, Interactive Technology Corporation Ltd ("ITC"), was formed and it is agreed that the three brothers had, throughout, equal interests in the shareholding in ITC. Initially, there was a fourth person, a Mr Harvey Binnes, who had a one-fourth equal interest in the shares of ITC but later Mr Binnes' connection with ITC ceased and the shares in ITC were held by the three brothers in three equal parts. The brothers' shareholdings in ITC are agreed in this litigation but very little else is, whether as to the initial formation of ITC and its business or as to later events.
This litigation has been very hard fought and, apparently, has been conducted at enormous expense to the protagonists. The allegations which are made are very grave. ITC, and Warren and Stuart, say that Jonathan has been seriously dishonest in relation to his dealings with ITC and the business which it ran or, at least, with which it was connected. ITC applied for and obtained a freezing order and a search and preservation order against Jonathan and a number of companies. There were many interlocutory hearings in relation to those matters, including an unsuccessful appeal by Jonathan to the Court of Appeal. Jonathan's case is that the allegations of dishonesty which are made against him are entirely without foundation. He says that ITC's claim involves Warren and Stuart going back upon clear arrangements and understandings which were made at the outset in 2004 and 2005.
Jonathan has brought his own proceedings against Warren and Stuart. His proceedings take the form of a petition under section 994 of the Companies Act 2006, that is, a claim that Warren and Stuart have caused the affairs of ITC to be conducted in a manner that is unfairly prejudicial to Jonathan as a member of ITC. Jonathan says that the whole dispute is a dispute between shareholders and is best understood and resolved in the context of his section 994 petition. In support of his petition, Jonathan says that Warren and Stuart are motivated by greed. He says that he has single-handedly built up a very profitable online gaming business. He says that it was agreed from the outset that the business would belong to him (through companies owned and controlled by him). His case is that the present success of the business owes everything to Jonathan's efforts and nothing to anything done by Warren and Stuart, because they did not do anything. Now that Warren and Stuart have lost their positions with Coral Products plc, Jonathan says that they wish to seize control of his business. He says that their greed has caused them to invent a claim on behalf of ITC against Jonathan. In addition to fabricating a case against him, he says that they are guilty of blackmail. Although they tried to hide their blackmail in the cloak of an allegedly without prejudice communication, Rose J and the Court of Appeal (upholding her decision and dismissing Warren and Stuart's appeal) have held that the cloak of without prejudice is not available in a case of unambiguous impropriety, as is involved in this case.
There are now three sets of proceedings. First is ITC's claim against Jonathan and 13 other companies with which he is connected, although one of them has not been served with the proceedings. I will refer to this claim as "the ITC claim". Next is Jonathan's section 994 petition (I will refer to these proceedings as "the Petition"). Lastly, there is a claim brought by Warren and Stuart personally against Jonathan. In these proceedings, Warren and Stuart refer to a line of defence which is maintained by Jonathan in answer to the ITC claim. The line of defence depends upon Jonathan, as the sole registered shareholder in ITC between 2004 and 2007, having caused ITC to act in a particular way. Warren and Stuart say that if Jonathan were to establish that line of defence (although they say that he cannot establish it) then Jonathan held the sole registered share in ITC on trust for Warren, Stuart and Mr Binnes, and Jonathan's actions, as now relied upon by him in his defence, will have amounted to a breach of that trust. I will refer to this claim as "the Trust Claim".
The three companies at the centre of the dispute
ITC was incorporated, in England and Wales, on 9 December 2004. The single subscriber share in ITC was transferred to Jonathan. Warren, Stuart and Jonathan were all appointed as directors. The Articles of Association of ITC adopted the regulations in the then current Table A, subject to some minor changes. It was not suggested that any of those changes to the then current Table A are relevant to this dispute.
In January 2007, Warren, Stuart and Jonathan executed Deeds which were described as "Deeds of Confirmation of Gift and Declaration of Trust". There was one Deed executed by Jonathan and Warren and a second Deed executed by Jonathan and Stuart. The effect of the Deeds was that Jonathan declared that he held his single share in ITC on trust as to 25% for Warren and as to 25% for Stuart. As to the remaining 50% of the beneficial interest in the share, the intention seems to have been that 25% was held for Jonathan and 25% for Mr Binnes. Mr Binnes had been employed by ITC in a managerial capacity until August 2007.
On 21 May 2007, Jonathan as sole member of ITC resolved to adopt new Articles of Association for ITC. The new Articles adopted the then current version of Table A, subject to variations. One such variation was Article 15 which dealt with the shares of a director or an employee of the...
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