Mark Faulkner v Vollin Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Adam Johnson |
| Judgment Date | 31 March 2021 |
| Neutral Citation | [2021] EWHC 787 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2018-005055 |
| Date | 31 March 2021 |
[2021] EWHC 787 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
INSOLVENCY AND COMPANIES LIST
COMPANIES COURT
IN THE MATTER OF COMPOUND PHOTONICS GROUP LIMITED
AND IN THE MATTER OF COMPOUND PHOTONICS UK LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006
7 Rolls Buildings
Fetter lane, London
EC 4A 1NL
Mr Justice Adam Johnson
Case No: CR-2018-005055
Mr Robin Hollington QC and Mr Adrian Pay (instructed by Mishcon de Reya LLP) for the Petitioners
Mr Andreas Gledhill QC, Mr Donald Lilly, Mr Timothy Lau and Zara McGlone (instructed by Allen & Overy LLP) for the First, Second and Fifth Respondents
The Third and Fourth Respondents did not appear and were not represented
Hearing dates: 9, 10, 11, 12, 13, 16, 17, 18, 19, 20, 23, 24, 25, 26, 27, 30 November 2020, 1, 2, 3 and 4 December 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
CONTENTS
| Paragraph | ||
| I | Introduction & Outline | 1 |
| II | The Principal Characters | 10 |
| III | The Scope of the Trial | 17 |
| IV | The Evidence | 18 |
| The Petitioners' Witnesses | 19 | |
| The Respondents' Witnesses | 21 | |
| The Experts | 29 | |
| V | Factual Background | 31 |
| Compound Photonics Prior to 2010 | 31 | |
| Vollin's 2010 Investment | 32 | |
| 2010–2013 | 50 | |
| The 2013 Constitution | 54 | |
| The 2013 SHA | 56 | |
| The 2013 Articles | 67 | |
| Newton Aycliffe | 77 | |
| The November 2013 Business Plan | 81 | |
| 2014: The Minden Investment | 85 | |
| The World Mobile Congress | 89 | |
| 2015: Vollin becomes concerned | 94 | |
| Mr Bolger's Visit to Phoenix | 100 | |
| Alternative Funding Source | 105 | |
| Presentation to the Minorities/Year-end 2015 | 108 | |
| Early 2016: the P1 Prototype | 112 | |
| 9–14 March 2016 | 126 | |
| Management of CPGL: 13 April Investor Update Meeting | 162 | |
| Newton Aycliffe & the Last Time Buy Notice | 167 | |
| Mr Faulkner | 174 | |
| 24 May 2016 Investor Update Meeting | 183 | |
| Mr Faulkner's “Lightbulb moment” | 184 | |
| Kaiam Corp. | 187 | |
| Mr Faulkner: Lunch at the Shard with Mr Bolger | 194 | |
| 4 July 2016: Meeting with Selex in Edinburgh | 199 | |
| Dr Lind Resignation | 204 | |
| Ongoing discussions with Kaiam | 205 | |
| Mr Faulkner Again | 211 | |
| 11 August 2016: Kaiam Visit to Newton Aycliffe | 221 | |
| Early August 2016: Mr Faulkner's solvency concerns | 224 | |
| 15 August 2016: Investor Update Meeting | 231 | |
| The clause 20.1 SHA issue | 239 | |
| Mr Faulkner's Circular | 251 | |
| Mr Bolger's Alleged Threat | 256 | |
| Finalising the Accounts and Mr Faulkner's Visit to Newton Aycliffe | 259 | |
| Mr Faulkner is Removed | 266 | |
| Newton Aycliffe: Revisited | 276 | |
| ATREG | 284 | |
| Newton Aycliffe: Considering the Options | 289 | |
| The Sale to Kaiam | 300 | |
| The Intended Kaiam Acquisition of Newton Aycliffe is Announced | 316 | |
| The Sale to Kaiam Completes | 320 | |
| Re-Sale of Newton Aycliffe by Kaiam | 321 | |
| VI | The Petitioners' Case in Outline | 334 |
| VII | Applicable Legal Principles | 338 |
| Defining The Parties' Bargain | 340 | |
| Contractual Obligations of Good Faith | 348 | |
| Good Faith Clauses: Scope | 350 | |
| Good Faith Clauses: Content | 354 | |
| Directors Duties | 371 | |
| Prejudice | 381 | |
| VIII | The Parties' Bargain in this Case and the Role of the Good Faith Clause | 382 |
| IX | The Removal of Dr Sachs | 401 |
| The Investors | 402 | |
| The Directors | 420 | |
| X | The Period After Dr Sachs' Departure: Summary | 431 |
| XI | Management of CPGL | 438 |
| The Investors | 439 | |
| The Directors: Mr Bolger as a Shadow Director? | 462 | |
| The Directors | 469 | |
| Article 17.1 – disclosure of interests | 473 | |
| CA s171(a) – duty to act in accordance with constitution | 477 | |
| CA s171(b) – duty to exercise powers for proper purposes | 478 | |
| CA s.172 – duty to promote success of the company | 479 | |
| CA s173 – duty to act independently | 486 | |
| CA s175/Art 17.2 – duty to avoid conflicts of interest | 487 | |
| XII | Change of Business | 492 |
| XIII | Removal of Mr Faulkner | 502 |
| The Investors | 503 | |
| The Directors | 511 | |
| XIV | Appointments of Further Directors | 512 |
| XV | Failure to Keep Minorities Informed | 528 |
| XVI | Newton Aycliffe | 532 |
| Was there a Sale at an Undervalue? | 534 | |
| Mr Indge's Approach | 540 | |
| Mr Mackie's Approach | 544 | |
| Discussion & Conclusions | 549 | |
| The Investors | 569 | |
| The Directors | 575 | |
| Article 17.1 – disclosure of interests | 577 | |
| CA s171(a) – duty to act in accordance with constitution | 578 | |
| CA s171(b) – duty to exercise powers for proper purposes | 579 | |
| CA s172 – duty to promote success of the company | 580 | |
| CA s173 – duty to act independently | 587 | |
| CA s175/Art 17.2 – duty to avoid conflicts of interest | 588 | |
| XVII | Conclusion | 592 |
I Introduction
This is the hearing of an unfair prejudice petition brought under section 994 of the Companies Act 2006.
The Petitioners are minority shareholders in Compound Photonics Group Limited (“ CPGL”). The First Petitioner, Mr Faulkner, is a former director and chairman of CPGL, and the Second Petitioner, Dr Sachs, is also a former director and CEO of CPGL. The remaining Petitioners are individual investors who were introduced to CPGL, and to Dr Sachs, by Mr Faulkner, in his former role as an independent financial adviser. These Petitioners have been referred to as “ the Minorities” although in point of fact Dr Sachs and Mr Faulkner are also minority shareholders in CPGL.
The business of CPGL, and of the Compound Photonics Group, grew out of Dr Sachs' academic research into gallium arsenide and liquid crystal technology. The business vision was to use this technology to revolutionise the market in projectors. The dispute between the parties arises largely out of Dr Sachs' efforts to realise that vision, through the medium of CPGL and its associated companies, in the period between 2010 and early 2016.
The Second and Fifth Respondents, Minden Worldwide Limited (“ Minden”) and Aldon Investments Ltd (“ Aldon”) are the present majority shareholders in CPGL. Aldon is the successor to another company, Vollin Holdings Limited (“ Vollin”). Vollin and Minden were the majority shareholders at the times relevant to these proceedings. During the trial, they came to be referred to as “ the Investors”, and I will adopt that description in this Judgment.
Vollin and Aldon are part of an investment structure of which the beneficial owners are Dr Alexander Abramov and Dr Alexander Frolov, two Russian businessmen who made substantial sums on the public listing of EVRAZ plc, a mining and metals business with interests in Russia, North America and elsewhere. Together Dr Abramov and Dr Frolov hold approximately 29% of the issued shares in EVRAZ plc.
Minden is part of an investment structure of which the Israeli-Russian businessman Mr Roman Abramovich is the beneficial object. He too is the owner of a 29% stake in EVRAZ plc.
The Petitioners make many detailed complaints, but in outline their case is a simple one. They say that they have been unfairly prejudiced because it was agreed that Dr Sachs and Mr Faulkner would remain involved in the management of CPGL, but in fact have been excluded – in the case of Dr Sachs in March 2016 and in the case of Mr Faulkner in October 2016. Moreover, say the Petitioners, in all periods after Dr Sachs' exclusion, the agreed-upon constitution of CPGL, as set out in its articles and a corresponding shareholders agreement, has effectively been ignored by the Investors and those associated with them, including in particular their nominated directors. This has resulted in further instances of unfair prejudice, arising both from breaches of the shareholders' agreement and the articles, and also from breaches by the Vollin and Minden nominee directors of the duties owed by them under the Companies Act 2006. Among the allegations made, a particularly important one concerns the alleged sale at an undervalue of a property known as Newton Aycliffe, which was owned by a subsidiary of CPGL, Compound Photonics UK Limited (“ CPUK”), the Fourth Respondent in these proceedings.
The Investors – who have also been referred to from time-to-time as the Active Respondents – deny all these allegations of unfair prejudice. Their basic point is that they invested huge sums in the business over many years in order to support Dr Sachs in realising his vision, but after long delays and a series of failures, they lost faith in Dr Sachs and entirely reasonably asked him to resign, which he agreed to do. They removed Mr Faulkner from the business by exercise of their majority vote after it became clear that his role as director and Chairman of CPGL was redundant and he had begun to behave in an erratic and unpredictable manner which was damaging to CPGL. They say that at all times they and their nominee directors acted in good faith, and so were not in breach of any provisions of the relevant shareholders agreement or, in the case of the...
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