John Micheal and Others v Gary Anthony Phillips and Others
| Jurisdiction | England & Wales |
| Judge | Mr Martin Rodger |
| Judgment Date | 24 March 2017 |
| Neutral Citation | [2017] EWHC 614 (QB) |
| Docket Number | Case No: HQ14X04691 |
| Court | Queen's Bench Division |
| Date | 24 March 2017 |
[2017] EWHC 614 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Martin Rodger QC
Sitting as a Judge of the High Court
Case No: HQ14X04691
Stuart Hornett (instructed by Barker Gillette LLP) for the Claimants
The Defendants did not attend
Hearing dates: 1 and 2 March 2017
Mr Martin Rodger QC
Introduction
This judgment concerns claims by Mr and Mrs Micheal and their mini-cab company Havering Radio Cars UK Ltd ("HRC") arising out dealings between 2010 and 2014 for the acquisition of HRC by the first and second defendants, Mr Phillips and his company A1 Group UK Ltd. Those dealings proved abortive but for a period of almost three years from January 2011 to November 2014 HRC was managed by A1 Group and Mr Philips pending an intended sale. The claimants make a series of financial claims in respect of that period. They also make claims concerning the building at 142 South Street, Romford from which HRC is run. The freehold interest in the building was purchased in July 2012 by Mr Philips and his wife, Mrs Lynn Philips.
In their broadest outline the financial claims are based on the allegation that Mr Philips and A1 Group breached fiduciary and contractual duties which they owed to the claimants while they were engaged to manage HRC in anticipation of its acquisition, and that they diverted the business of HRC and combined it with the business of A1 Group causing loss to the claimants when the intended acquisition failed to progress to completion.
The claims relating to 142 South Street seek to establish that HRC has a tenancy of the ground floor of the premises which is a business tenancy within the scope of Part II of the Landlord and Tenant Act 1954 and that Mr and Mrs Phillips hold the freehold of the premises on a constructive trust for Mr Micheal.
During the hearing I gave an ex tempore judgment on the financial claims, the reasons for which I now record in substantially the same form. The claimants had become aware shortly before the trial that notice has been give by the second defendant, A1 Group, that a meeting of its creditors was to be convened on 3 March at which a resolution was to be proposed for a voluntary winding up. The claimants wished to participate in that meeting with the benefit of the judgment I was satisfied they were entitled to. I also now deal for the first time with the claims concerning 142 South Street.
Parties
On 3 February 2017 Green J made an order striking out the defence and counterclaim of Mr Phillips and A1 Group. The order was made for the reasons explained in a judgment given on 2 February 2017 following the hearing of an application to debar the first and second defendants for breach of an unless order, and a cross application for relief against sanctions. In summary, Green J was satisfied that Mr Phillips and A1 Group were in serious breach of a number of orders requiring that they preserve company records and computer equipment and give disclosure of documents. In particular he was satisfied that Mr Philips had deliberately destroyed computer hard drives on which relevant financial data was held and that this was part of a broader strategy of refusing to provide disclosure.
At a subsequent PTR held on 9 February 2017, Soole J. ruled that the effect of the striking out and debarring order was that Mr Phillips and A1 Group were prevented from participating to any extent at the trial on issues other than costs and could not challenge the claims or evidence of the claimants. As a result they did not attend and played no part in the trial.
Despite having been struck out the defence of the first and second defendants usefully serves to define the factual issues in dispute and those which the claimants are not required to prove. It includes a number of admissions concerning the manner in which the business of HRC was run by Mr Philips and A1 Group on which the claimants have relied in support of their case.
The third defendant, Mrs Phillips, is unaffected by the striking out of her husband's defence, and it had been expected that the trial of the property claims would proceed against her in the conventional way. However, on 22 February 2017 her solicitors, Geldards, wrote to the Court informing it that Mrs Philips had decided not to be represented at or to attend the trial. Their letter made a number of helpful concessions on behalf of all three defendants by admitting the contents of the witness statements of 17 witnesses who had played small parts in the events with which the action is concerned and whom the claimants would otherwise have called to give evidence.
The facts in outline
The fullest account of the relevant facts was contained in the third witness statement of Mr Micheal the contents of which (and earlier statements) he confirmed under oath and elaborated on in some small respects in oral evidence. He also answered a number of questions from me about his recollection of matters of particular relevance to the property issues. He gave his evidence in a straightforward manner and although his recollection of certain events was not especially clear, I have no hesitation in accepting the broad outline and much of the relevant detail of his account.
Mr Micheal explained that until the end of 2010, and for over 30 years before that, he had run a number of mini-cab businesses in the Romford and Havering areas. He had always traded under the names "A1" and "A1 Network". At different times he had traded through a variety of companies, one of which, Havering Radio Cars Limited, was incorporated on 16 May 1990 and was the entity through which he ran the business until September 2009. Following an investigation of the company's tax affairs (the outcome of which, I was informed by Mr Micheal, was that it was wholly exonerated) Mr Micheal incorporated HRC on 26 September 2009 to take over the business on the advice of insolvency practitioners.
Mr and Mrs Micheal are the sole and equal shareholders in HRC. Although not formally a director (again on professional advice) Mr Micheal ran the company from March 2010 (when it started trading) until management was passed to Mr Phillips and A1 Group in January 2011. Mr Micheal became a director of HRC in August 2014 after the dispute had arisen.
Mr Micheal has always traded from the ground floor of 142 South Street, Romford which was the centre of his business operations. The premises are close to Romford railway station and very well situated to attract business from bars and clubs in the centre of the town; they have always been by far the busiest location from which HRC and its predecessors operated. By 2010 the company also occupied satellite mini-cab offices in 3 other locations: at Hornchurch Station, Elm Park Station and Harold Hill.
The business model operated by Mr Micheal is a common form for mini-cab firms. The business operates with relatively modest overheads and derives income from payments it receives from its drivers rather than from passengers. All drivers are self-employed and own or lease their own vehicles. The company passes on jobs to the drivers, using hand held devices linked to a central computerised despatching system. Each driver pays a weekly fee of between £100 to £130 and a smaller additional fee of 60 pence per fare. Most of the company's income is received in cash. The success of the business depends to a significant extent on the company attracting and retaining drivers, which requires it to generate calls from customers or walk-in business. As a result the value of the business is in its good will.
By 2009 Mr Micheal wished to retire. He was approached by Mr Phillips who offered to buy his business. Mr Philips already owned and operated a mini-cab business in the area through a partnership known as Elm Cars based in Dagenham. After a period of negotiation a sale price of £2m was agreed for the entire share capital in HRC. This sum was to be paid in instalments after Mr Philips had taken over the day to day running of HRC, and initially at least the source of payment was to be the income generated by the business itself. In anticipation of the purchase Mr Phillips incorporated A1 Group.
Heads of terms were agreed in March 2010. They made no reference to the South Street premises. The parties agreed to negotiate the details of the agreement with a view to completion taking place by 23 December 2010 and management of HRC by A1 group commencing on 3 January 2011. The transaction proceeded in accordance with that leisurely timetable and on the 23 rd December 2010 HRC entered into two agreements, a Management Agreement and a Purchase Option Agreement.
The Management Agreement
Under the terms of the Management Agreement A1 Group (referred to as "the Management Company") was engaged to provide certain services to HRC ("the Company") from 3 January 2011 until the termination of the agreement on 31 May 2011, or on the sale of the share capital (or for breach). The relevant obligations were contained in clause 3.1 of the Agreement and in its first schedule. Clause 3.1 provides as follows:
"During the Engagement the Management Company shall, and (where appropriate) shall procure that the Individual shall:
(a) provide the Services with all due care, skill and ability and use its or his best endeavours to promote the interests of the Company;
(b) unless the Individual is prevented by ill health or accident, devote such time and effort as he, in his professional pinion deems necessary in each calendar month to the carrying out of the Services for their proper performance; and
(c) promptly give...
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