Larvin v Phoenix Office Supplies Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Auld,Lord Justice Clarke,Lord Justice Jonathan Parker |
| Judgment Date | 28 November 2002 |
| Neutral Citation | [2002] EWCA Civ 1740 |
| Docket Number | Case No: A3/2002/0852 |
| Court | Court of Appeal (Civil Division) |
| Date | 28 November 2002 |
[2002] EWCA Civ 1740
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
The Hon. Mr. Justice Blackburne V-C
Royal Courts of Justice
Strand,
London, WC2A 2LL
Lord Justice Auld
Lord Justice Clarke and
Lord Justice Jonathan Parker
Case No: A3/2002/0852
Mr Grant Crawford (instructed by Irwin Mitchell) for the Appellant
Mr Edward BartleyJones QC (instructed by Wacks Caller) for the Respondent
The Companies Act 1985 makes provision, in Part XVII, for the protection of a company's members against unfair prejudice. By section 459, "[a] member of a company may apply to the court … for an order … on the ground that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of" all or some of its members or just himself. And by section 461, "[if] the court is satisfied that … [the application] is well-founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of".
The appeal arises out of a petition by the Respondent, Shaun Larvin, a shareholder and director of the first Appellant, Phoenix Office Supplies Limited, alleging that the affairs of the company had been conducted by the second and third Appellants, his fellow shareholders and directors, Jonathan Parish and Brian Ogden, in a manner unfairly prejudicial to his interests. Blackburne J. has held that his petition is well-founded and, in the exercise of the broad discretion conferred by section 461, has ordered that the company, Mr Parish and Mr Ogden should purchase his shares at approximately one third of the valuation of the company at the date of the hearing, which he assessed, on a maintainable earnings basis, at £290, 000.
The claimed unfair prejudice is that Messrs Parish and Ogden, who held between them some two thirds of its issued capital, wrongfully excluded Mr. Larvin, the third director and remaining one third shareholder, from his entitlement as a director to access to the company's records, thereby preventing him from protecting his interest as a shareholder.
It is important to note that Messrs Parish and Ogden, initially at any rate, did not seek to exclude Mr. Larvin as a director or in any other respect from his involvement in the company. He it was who wanted to sever all connection with it for personal reasons and to sell them his shares at their full value – that is, without an agreed discount to reflect his minority holding. He remained a director for the sole purpose of enabling him to negotiate and secure that sale. The central issue on the appeal, given the Judge's findings of fact, is whether, as a minority shareholder seeking to leave the company, he was entitled, by a petition under section 459, to obtain relief under section 461 enabling him to "put" his shares on Messrs Parish and Ogden at their full value. There is a subsidiary issue, if the section 459 claim is established, as to how and at what date the full value of his shareholding should be calculated.
The facts
The essential facts, as found by the Judge and unchallenged in the appeal, are as follows.
The company was incorporated on 25 th September 1989. Mr. Parish acquired it shortly after and, until about 1995, was the beneficial owner of all its 100 issued shares. It was based in Sheffield and its main business in the early days was the supply of office equipment and stationery. In about 1991 Mr. Larvin joined Mr. Parish, initially not as a company shareholder, director or employee, but as a sort of partner in the establishment of a separate "division" of the company specialising in the supply of computer products, trading as "Phoenix Computers". The arrangement was that they would divide the profits of the new division equally between them after paying for the use of the company's premises and towards its overheads.
This new venture soon became the principal source of the company's turnover and profit. And, as it developed, Mr. Larvin became more closely involved with the company in an institutional sense. In March 1992 he became an employee as sales manager for Phoenix Computers. In 1994 and 1995 he became a director and shareholder respectively, following an agreement with Mr. Parish and Mr. Ogden, the company's hitherto part-time accountant and bookkeeper, that each would hold a third interest in the issued share capital, would be a director and would work full-time for the company. Mr. Parish transferred 33 of his shares to Mr. Larvin and 33 to Mr. Ogden and retained the balance of 34. Mr Parish "gave" those shareholdings to them seemingly in consideration for their past and contemplated future working contribution to the success of the company.
The computer side of the business continued to flourish and to grow; so much so, that in early 1995, the three men began to consider putting the company's affairs and their respective interests in it on a more formal footing. On 27 th March 1995 they held a meeting at which they discussed, among other matters, what would happen to their respective shareholdings if any of them ever wished to leave the company. The general drift of their discussion was that each, on, or over a two year period after, leaving, should receive one third of the value of the company's net asset value – that is, without any discount for his minority holding. Insofar as one can tell from notes produced at the time by Mr. Larvin, what they may have had in mind was that each of them should have a put-option against the others for the proportion of the value of the company represented by his shareholding. They reached no final agreement on the matter, but took it sufficiently seriously to seek the advice of a solicitor. However, although there was some further discussion and the solicitor produced some drafts for their consideration, nothing came of them. The Judge's finding on the matter was as follows:
"14. It is reasonably clear, I think, that what was 'agreed' at the meeting of 27 March … represented matters which the three of them, at the time, wanted to have included in properly drafted documentation. I reject the evidence of Mr. Parish and Mr. Ogden that the buy-out provision on leaving the company, as recorded in Mr. Larvin's note, did not represent what they were willing to agree at the time of their meeting … On the other hand, I am of the view that it was never intended that they should be bound there and then by what was agreed. I reject Mr. Larvin's evidence in so far as he suggested that they were be bound. … In any event, as Mr. Bartley Jones accepted, it is impossible to give a sensible meaning to Mr. Larvin's notes, at any rate the passage concerned with what was to happen to a director's shares when that director wished to leave the company."
A further five years passed under the same ownership and direction. The company's business and value continued to grow, save for a hiccup in 2000 caused in the main by the company's investment in an expensive and wayward new computer system. However, in the autumn of 2000 Mr Larvin decided for personal reasons – a change of domestic partner – that he wanted to leave the company and move from Sheffield to a new home and job in Manchester. On 12 th September 2000 he wrote to Mr Parish informing him of his wish, giving him two months' notice of his resignation "as an employee" and expressing the hope that associated matters, "such as shareholders agreements, directors' loan accounts, pensions etc." could be dealt with "in a professional manner". As to his loan account, which amounted to about £23,000, he requested payment in full by the end of the month. In the final two paragraphs of the letter, he can have left Mr. Parish in no doubt that, in addition to his resignation as an employee, he wished to relinquish on suitable terms and as soon as possible his position as shareholder and director:
"… as time is of the essence, I would like to arrange a meeting to discuss my future association with Phoenix Offices [sic] Supplies Ltd as a shareholder and a director.
As you are aware a number of factors have contributed to this decision on both a personal and professional level and I hope you will wish me well with the new life I intend to make away from Sheffield with my new partner and that this parting can be amicable."
As the Judge found, all this came as a complete surprise to Messrs Parish and Ogden and had not resulted from any significant concern of Mr. Larvin about the running of the company. There followed a meeting on 14 th September at which, according to Messrs. Parish and Ogden at the time and in evidence, Mr Larvin orally tendered his resignation as a director. However, in a letter written a few days after the meeting, Mr. Larvin denied the suggestion, making plain that he had not done so and did not intend to do so "until after the purchase and transfer of my shares is completed in full". Other correspondence passing between them thereafter supported Mr. Larvin's stance, to which he adhered in evidence and which the Judge accepted.
Thus, Mr. Larvin retained both his directorship and membership of the company although he was about to terminate his employment with it. That termination took place, with the agreement of Mr. Parish and Mr. Ogden, within the two months period of notice that he had given. He left on 3 rd October 2000. Thereafter, his only interest and involvement with the company were his attempt to secure early repayment of the money owing to him on his loan account and, in...
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