LA Micro Group (UK) Ltd v LA Micro Group Inc.
| Jurisdiction | England & Wales |
| Judge | Jarman |
| Judgment Date | 27 May 2022 |
| Neutral Citation | [2022] EWHC 1304 (Ch) |
| Docket Number | Case No: BL-2020-000292 |
| Court | Chancery Division |
[2022] EWHC 1304 (Ch)
HIS HONOUR JUDGE Jarman QC
Sitting as a judge of the High Court
Case No: BL-2020-000292
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Rolls Building
Fetter Lane, London
Mr Paul Strelitz and Mr Oliver Hyams (instructed by Owen White Limited) for the claimants
Mr William Buck and Mr William Hooper (instructed by Fladgate LLP) for the first defendant
Mr Alex Barden (instructed by Schofield Sweeney LLP) for the second defendant
Mr Matthew Thorne (instructed by O'Melveny & Myers LLP) for the third defendant
Hearing dates: 10 and 101March 2022
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.
It was handed down remotely, deemed at 10.30 am on 27 May 2022, and copies emailed to the parties and transferred to the National Archives.
HHJ Jarman QC:
Introduction
This matter first came before me in January 2021 when there were several issues between the parties, one of which was whether in 2010 the first defendant (Inc) disclaimed its beneficial interest in shares of the first claimant (UK). That interest arose following an agreement between the first claimant Mr Bell and the third defendant Mr Lyampert on behalf of Inc in 2004 (the 2004 agreement) whereby 51% of the shares were held on trust for Inc. Another issue was whether following further agreement between Mr Bell and Mr Lyampert in 2010 (the 2010 agreement), they are now the only shareholders of UK, as they assert. Inc maintained that nothing changed in 2010 so that it is still beneficially entitled to a 51% shareholding in UK and to an equal share of the profits.
In a judgment handed down later in January 2021 (NC number [2021] EWHC 140 Ch) after hearing evidence from the three individual parties, Mr Bell, Mr Frenkel and Mr Lyampert, I found in favour of UK and Mr Bell on those issues. I dealt with Mr Bell's evidence before me as to the disclaimer relied upon, and what he understood by it, in paragraphs 28 to 35 of the 2021 judgment. Because of inconsistencies in his evidence I treated his evidence on these points with caution.
Nevertheless, after weighing up all of the evidence and inherent likelihoods, I made findings of fact at paragraphs 57 and 58, and concluded that the balance of likelihoods tipped in favour of Mr Bell's account on the points set out in paragraph 9. In summary, in February 2010, Mr Frenkel told Mr Bell that he was dissolving Inc and wanted nothing to do with UK and that the business was his to do with what he liked. The following month he repeated that position and told Mr Bell that the company was his. Mr Frenkel made clear that he was walking away from UK.
These statements have become known together as the Frenkel disavowal. The context was that the two directors and equal shareholders of Inc, Mr Frenkel and Mr Lyampert, had fallen out badly and the company was in deadlock. Mr Bell says, and I accept, that his concern, which he expressed in speaking with Mr Frenkel, was how that would affect UK, and the Frenkel disavowal came in response.
After the 2021 judgment, Inc accepted that it was not entitled to a share of the profits of UK, but appealed to the Court of Appeal as to the ownership of the shares. The first ground was that Mr Bell and UK were estopped by conduct from asserting that the ownership changed in 2010. The appeal came on for hearing in October 2021. The Court of Appeal rejected the first ground.
The second ground related to the finding of disclaimer. It was submitted on behalf of Inc that it could not have had the requisite knowledge for such a disclaimer. At the outset of Inc's submissions on this issue, the Court raised the question of whether Inc could disclaim, when it had previously accepted the shareholding. As a point of pure law, Inc was allowed to introduce that question into the appeal, which was not strenuously opposed on behalf of UK and Mr Bell. It was upon this point that Inc ultimately succeeded before the Court of Appeal (NC number [2021] EWCA Civ 1429).
UK and Mr Bell had filed respondents' notices seeking to uphold the finding that Inc's shares were held between Mr Bell and Mr Lyampert on bases other than disclaimer. The first of these, abuse of process, was rejected by the Court.
The issues now for determination
The second basis was an alleged contractual surrender of Inc's shareholding in 2010. Sir Christopher Lloyd summarised the submissions on behalf of UK and Mr Bell under this heading as follows at paragraph 57:
“i) For the reasons expanded on below, the effect of the Frenkel disavowal and the 2010 arrangements was that there was a binding agreement between Inc, Mr Bell and Mr Lyampert pursuant to which, amongst other matters, Inc was to surrender its beneficial interest in the shares in UK and/or to release Mr Bell and Mr Lyampert as trustees.
ii) The 2004 agreement had been a collaborative commercial agreement between Mr Bell and Inc involving (a) 49/51 beneficial ownership of shares; (b) 50/50 share of profits; and (c) preferential trading between Inc and UK. This was a coherent package: Inc was entitled to proprietary rights and a profit share because it was contributing to UK through the preferential trading arrangement.
iii) It is now common ground that by the 2010 arrangements (a) Inc was released from its debt to UK, (b) the profit-sharing arrangement with Inc was brought to an end, and (c) the preferential trading arrangement was brought to an end.
iv) In those circumstances the judge ought to have held that the 2010 arrangements included the surrender by Inc of its beneficial interest in the share of UK and/or the release of Mr Lyampert and Mr Bell as trustees because (a) it made no commercial sense for Inc to retain a controlling interest in UK; (b) Mr Lyampert and Mr Bell agreed to split the shareholding in UK 50:50 at a time when Mr Lyampert had authority to act and was acting for Inc, and it was implicit in that arrangement that Inc would surrender its beneficial interest and/or that Mr Bell and Mr Lyampert would no longer be trustees; and (c) Mr Frenkel, who also had authority to act and was acting on behalf of Inc had said that he wanted nothing to do with UK. Those words were clear enough to bring all three elements of the 2004 agreement to an end.”
Sir Christopher Floyd then went on to consider these points, but concluded at paragraph 80:
“We did not hear full argument on the points which I have thus far identified. Having identified them, I consider that they should be decided, if indeed they arise, on the basis of actual rather than assumed facts, and after more extensive legal argument than we have heard.”
He came to a similar conclusion in relation to whether any such arrangement needed to be in writing under section 53(1)(c) of the Law of Property Act 1925 or whether the 2004 agreement gave rise to a constructive trust so that under section 53(2) there was no need for writing in respect of any surrender in 2010. He held that it was impossible to come to a concluded view on the limited argument which the Court heard.
The next basis on which it was contended that the judgment should be upheld even though there had been no disclaimer of the shares, was on the basis of laches in that it is unconscionable for Inc now to assert a beneficial interest in the shares of UK. It is common ground now that the 2010 agreement put an end to preferential trading and profit-sharing between UK and Inc and those companies thereafter only rarely traded, and then on terms which were not preferential. Accordingly, Inc ceased to bear any commercial risk or expense associated with UK's business, and made no contribution to UK's profits. In the years since then, such profits have increased substantially.
The final ground in the respondent's notice was that the Frenkel disavowal amounted to a representation that Inc was giving up its beneficial interest in the shares in UK, which Mr Bell relied upon in deciding not to wind up UK and conduct its business through another commercial vehicle, but instead continued to operate on the basis of the 2010 agreement. It would be unconscionable for Inc to deny that it gave up its interest in 2010 and to become the controlling shareholder of UK.
On these two issues the Court took a similar course to that taken in respect of contractual surrender, namely to refer these issues to this court. At paragraph 108, Sir Christopher Floyd said this:
“I would allow the appeals to the extent of referring the issues of contractual surrender, laches and proprietary estoppel to the judge pursuant to CPR 52.20(2)(b). It will be a matter of case management for the judge as to whether to allow further evidence, but he should bear in mind that there has already been a trial of these issues, and the parties have had a full opportunity to advance their cases.”
Basis of determination
I subsequently held a case management conference in which I decided not to allow further evidence. Moreover, by my order dated 17 November 2021, I directed that these issues should be confined to the way in which they were set out in the respondent's notices. Accordingly the referred issues came on for hearing before me over two days in March 2022. Each of the parties filed skeleton arguments, which totalled some 130 pages of further written submissions. Each made oral submissions over a further two days. Mr Buck, for Inc, properly made clear that he did not seek to go behind any of the factual findings which I made in the 2021 judgment as they impact upon the referred issues.
Those findings...
To continue reading
Request your trial
-
La Micro Group (UK) Ltd v La Micro Group, Inc.
...AND PROPERTY COURTS OF ENGLAND AND WALES BUSINESS LIST (ChD) His Honour Judge Jarman QC (sitting as a Judge of the High Court) [2022] EWHC 1304 (Ch) Royal Courts of Justice Strand, London, WC2A 2LL William Buck and William Hooper (instructed by Fladgate LLP) for LA Micro Group, Alex Barden ......