La Micro Group (UK) Ltd v La Micro Group, Inc.
| Jurisdiction | England & Wales |
| Judge | Mr Justice Nugee |
| Judgment Date | 03 June 2020 |
| Neutral Citation | [2020] EWHC 1405 (Ch) |
| Date | 03 June 2020 |
| Docket Number | Case No: BL-2020-00292 |
| Court | Chancery Division |
[2020] EWHC 1405 (Ch)
Mr Justice Nugee
Case No: BL-2020-00292
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Rolls Building, Royal Courts of Justice
Fetter Lane, London EC4A 1NL
William Buck and William Hooper (instructed by Fladgate LLP) for the 1 st Defendant
Thomas Sebastian and Alfred Artley (instructed by Reynolds Porter Chamberlain LLP) for the 2 nd Defendant
Paul Strelitz (instructed by Owen White Ltd) for the Claimants
Hearing dates: 3 and 6 April 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.
Introduction
This judgment is given on the hearing of applications by the 1 st Defendant, LA Micro Group, Inc, ( “LA Inc”) and the 2 nd Defendant, Mr Roman Frenkel, disputing the jurisdiction of the English court to hear the action. I will refer to them together as “the Applicants”.
The 1 st Claimant, LA Micro Group (UK) Ltd ( “LA (UK)”), is an English company. It was incorporated in 2004 and acquired by the 2 nd Claimant, Mr David Bell, a British citizen resident in England. It now has two issued shares, one in the name of Mr Bell, and one in the name of the 3 rd Defendant, Mr Arkadiy Lyampert. Mr Bell and Mr Lyampert are also the two directors of the company.
The substantive question raised in the action is as to the beneficial ownership of LA (UK). The position of the Claimants is that Mr Bell and Mr Lyampert are not only the legal owners of the two issued shares but also the beneficial owners, and that they are each entitled to 50% of the distributable profits of the company by way of dividends. Mr Lyampert's position is the same, although he has indicated that he does not intend to take any active part in the proceedings, and was not represented before me.
The position of the Applicants by contrast is that Mr Bell is only entitled to a 49% beneficial interest in the shares of LA (UK), and that LA Inc is entitled to the other 51%. LA Inc is a Californian corporation, and is, or was, owned 50/50 by Mr Frenkel and Mr Lyampert, both of whom are resident in California.
The Claim Form, in the form of a Part 8 claim seeking declaratory relief, was issued on 14 February 2020. By application notice dated 17 February 2020 the Claimants sought permission to serve the Claim Form on the Defendants in California, relying on the gateway in paragraph 3.1(11) of Practice Direction 6B, namely that the subject matter of the claim related wholly or principally to property within the jurisdiction. By Order dated 19 February 2020 Deputy Master Hansen granted permission to serve the Claim Form on the Defendants in California.
By application notices dated 17 March and 26 March 2020 respectively Mr Frenkel and LA Inc have applied under CPR r 11 to set aside the Order of 19 February 2020 granting permission to serve the proceedings out of the jurisdiction on the grounds that the court lacks jurisdiction. That is the question which has been argued before me. There is in each case an alternative application for the court to decline to exercise its jurisdiction if it has any, but it was not suggested that this in practice raises any separate issue. There is also a question raised as to whether the claim should proceed, if it is to proceed at all, as a Part 8 claim or a Part 7 claim, but this is very much a subsidiary question.
By CPR r 6.36 the claimant may serve a claim form out of the jurisdiction with the permission of the court if one of the gateways set out in Practice Direction 6B paragraph 3.1 applies. The principles applicable to the grant of permission are well established. They were summarised by Lord Collins JSC in Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd [2011] UKPC 7 at [71]. The claimant has to satisfy the court of three requirements:
(1) That there is a serious issue to be tried on the merits. The current practice in England is that this is the same as the test for summary judgment, namely whether there is a real (as opposed to fanciful) prospect of success.
(2) That there is a good arguable case that the claim falls within one of the gateways.
(3) That in all the circumstances of the case England is clearly or distinctly the appropriate forum for the trial of the dispute. This requirement is reflected in CPR r 6.37(3) which provides that the court will not give permission unless satisfied that England and Wales is the proper place to bring the claim.
In the present case, the Applicants do not dispute that the claim falls within one of the gateways, but they do take issue both with there being a sufficient case on the merits, and with England and Wales being the proper forum.
Mr William Buck, who appeared with Mr William Hooper for LA Inc, took the lead on the merits ground. Mr Thomas Sebastian, who appeared with Mr Alfred Artley for Mr Frenkel, developed the forum ground. Mr Paul Strelitz appeared for the Claimants. The hearing was conducted, as is usual in the current circumstances, as a remote hearing using Skype for Business; I am grateful to counsel and their instructing solicitors for their co-operation in enabling this to happen with the minimum of difficulty, and as with other matters I have conducted in this way, it proved an effective and satisfactory way of holding the hearing.
Establishment of LA (UK)
There is a long history to this matter and it is necessary to give quite a detailed account of the background to the current proceedings. I can take much of it from the judgment of Ms Amanda Tipples QC (as she then was), sitting as a Deputy Judge of the High Court, in previous English proceedings brought in the Chancery Division in 2015 by Mr Frenkel against Mr Lyampert, Mr Bell and LA (UK). These proceedings ( “the 2015 proceedings”) came to trial before Ms Tipples in June 2017, and after a 6-day trial she handed down a reserved judgment on 13 September 2017, the neutral citation of which is Frenkel v Lyampert [2017] EWHC 2223 (Ch) ( “the 2017 Judgment”).
The 2015 proceedings also concerned the question of who was the beneficial owner of the shares in LA (UK). I will have to look later at precisely what was in issue, and what was decided, but in essence Mr Frenkel's claim was that he was a 25.5% beneficial owner of the shares, and that claim was rejected by Ms Tipples in the 2017 Judgment.
Although Mr Bell, Mr Frenkel, Mr Lyampert and LA (UK) were parties to the 2015 proceedings, LA Inc was not, a point that was put at the forefront of Mr Buck's submissions on its behalf. I should therefore make it clear that findings of fact made by her are not (or may not be) binding on LA Inc, and the account I give below is not necessarily accepted by LA Inc. But with that caveat, it is convenient to refer to her findings as a way of giving an account of the background, most of which I did not understand to be disputed in any event.
References in this section of the judgment to numbers in square brackets are to paragraphs of the 2017 Judgment. Mr Lyampert and Mr Frenkel met in California in 1998 and ran a small business together buying and selling computer equipment [60]. That did not last, but in 2001 Mr Lyampert established a new company, namely LA Inc (originally called LA Micro Exchange Inc but renamed in 2003), got back in touch with Mr Frenkel, and agreed to go into business with him again through LA Inc. They each owned 50% of the shares. Its business was the purchase and resale of high-end computer parts [61].
Shortly after LA Inc was set up in 2001, it started trading with an English company called Bstock, owned by Mr Bell [63]. In due course that led to discussions in 2003–4 between Mr Bell on the one hand, and Mr Frenkel and Mr Lyampert (and also Mr Alex Gorban, a senior employee of LA Inc) on the other hand about a joint venture [63], [64]. By July 2004 that had resulted in an agreement in principle for LA Inc and Mr Bell to be shareholders in a new UK company, and on 1 July 2004 Mr Bell's accountants acquired an off-the-shelf company for him, namely LA (UK) (it had been incorporated under the name Windbell Investments Ltd on 27 April 2004, but changed its name to LA Micro (UK) Ltd on 11 August 2004) and he was appointed director and secretary [4], [64], [67]. He also became the sole shareholder, holding the one issued share (Ms Tipples says this was issued to him “on 27 April 2004” [6], but this does not seem to fit with the chronology and it seems more likely that it was issued on 27 April 2004 as a subscriber share and later transferred to him).
In August 2004 Mr Lyampert, accompanied by Mr Gorban but not by Mr Frenkel, came to the UK to finalise matters [76]. Discussions were held at Mr Bell's house in Windsor on or about 3 August 2004 [77]. It was common ground between all three parties (Mr Frenkel, Mr Lyampert and Mr Bell) that in the course of those discussions it was orally agreed that the company should be owned 49% by Mr Bell, but they differed as to what was agreed as to the ownership of the other 51% [16]. Mr Frenkel's case was that 25.5% was each to be owned by him and Mr Lyampert personally [10]; Mr Lyampert's that the 51% was to be owned by him alone [18]. Mr Bell however gave evidence that the agreement was that the 51% should be owned by LA Inc [78]. Ms Tipples, who heard from Mr Frenkel, Mr Gorban, Mr Lyampert and Mr Bell,...
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La Micro Group (UK) Ltd v La Micro Group, Inc.
...(“the jurisdiction judgment”) was given by Nugee J (as he then was) at an interim stage in the present proceedings on 3 June 2020: [2020] EWHC 1405 (Ch). The jurisdiction judgment was given on an unsuccessful challenge by Inc and Mr Frenkel to the jurisdiction of this court to try the pres......
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La Micro Group (UK) Ltd v La Micro Group, Inc.
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