La Micro Group (UK) Ltd v La Micro Group Inc.
| Jurisdiction | England & Wales |
| Judge | Jarman |
| Judgment Date | 29 January 2021 |
| Neutral Citation | [2021] EWHC 140 (Ch) |
| Docket Number | Case No: BL-2020-000292 |
| Court | Chancery Division |
[2021] EWHC 140 (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
7 Rolls Building, London EC4A 1NL
Mr Paul Strelitz and Mr Oliver Hyams (instructed by Owen White) 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 Mathew Thorne (instructed by O'Melveny & Myers LLP) for the third defendant
Hearing dates: 8 to 15 January 2021
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.
HH JUDGE Jarman QC:
The second claimant Mr Bell is the registered owner of the only share issued on the incorporation of the first claimant company (UK) in 2004. The only other share issued was in 2008 or 2009 to the third defendant Mr Lyampert. The claimants accept and plead their case on the basis that until 2010 the shares were held on a resulting trust as to 49% for Mr Bell and as to 51% for the first defendant company incorporated in California (Inc) and that profits were split equally between Mr Bell and Inc. The claimants however assert that in that year Inc disclaimed its beneficial interest in the shares and in its share of the profits, and that following agreement between Mr Bell and Mr Lyampert the beneficial ownership now accords with the legal registration and profits are paid accordingly. Mr Lyampert agrees that that is now the position. Inc, however, asserts 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.
The second defendant, Mr Frenkel, claimed in proceedings (HC-2015-004753) which he brought in this jurisdiction in 2015 against UK, Mr Bell and Mr Lyampert, that the shareholding was owned as to 49% by Mr Bell and as to 25.5% each by him and Mr Lyampert. Inc was not party to that claim, as its only two equal shareholders and directors, Mr Frenkel and Mr Lyampert, had fallen out badly in 2010 and Inc was then in deadlock. Those proceedings were heard and determined by Mrs Amanda Tipples QC, sitting then as a deputy judge of the High Court in 2017. She dismissed the claim ( [2017] 1 EHWC 2223 (Ch)).
Judge Tipples' conclusions were set out in paragraphs 121 to 125 of her judgment, extracts from which are set out below:
“I have reached the clear view that…there were no discussions between Mr Frenkel, Mr Lyampert and Mr Bell in late 2003 or early 2004 pursuant to which it was agreed a company would be established in the UK in which they all would be individually shareholders and directors…Rather, the agreement made between Mr Lyampert, on behalf of Inc, with Mr Bell, was that Inc would own 51% of the UK Company's share capital… [and] that the UK Company's profits would be split equally between Mr Bell and Inc…
Mr Frenkel owned Inc 50/50 with Mr Lyampert and Inc was dissolved in February 2010, an event which gave rise to the Californian Claims. Following the breakdown of the relationship between Mr Lyampert and Mr Frenkel, Mr Frenkel disavowed any interest in the UK Company in what he said to Mr Bell in March 2010. Mr Bell accepted what he was told by Mr Frenkel in person and over the telephone at that time, and I accept that if Mr Bell had known that Mr Frenkel claimed an interest in the UK Company, then Mr Bell would have wound the UK Company up, and would have set up a new company. It was over five and a half years later, in November 2015, that Mr Frenkel issued this claim and, in the meantime, the UK Company had become, and continues to be, very profitable. I accept what Miss Ansell QC has said in her closing submissions at para 60:
“As a result of Mr Frenkel walking away from the [UK] Company and participation in its trade, Messrs Bell and Lyampert (believing themselves to be the undisputed sole two shareholders in the Company) used the [UK] Company to engage in further extensive trade, putting time and resources into making in a success. This trade would have been carried out through a completely different vehicle if Mr Frenkel had made his position clear. To allow Mr Frenkel now to re-enter the scene and take 50% of Mr Lyampert's shareholding, past and future dividends would thus cause the latter substantial injustice and lost capital and income”.
In these circumstances, I do not see that Mr Frenkel as the claimant, is entitled to any relief in respect of Inc, particularly in circumstances where I have found, as a matter of fact, that he disavowed any interest in the UK Company in March 2010, and Mr Bell continued the UK Company's business in reliance on what he was told by Mr Frenkel in this regard. If, as Mr Frenkel now says, he can claim relief in respect of Inc, then his claim in this regard should have been set out in his statement of case and properly pleaded. That, of course, is so that Mr Lyampert and the other defendants would have the opportunity to consider, and meet the case advanced on behalf of Inc. It is not a claim that can be introduced by Mr Frenkel as an afterthought under CPR Part 16.2(5). Further, for what it is worth, I do not consider that it is a claim that is likely to succeed, given the very substantial delay in the bringing of this claim, what Mr Frenkel told Mr Bell in March 2010, and the continued operation of the UK Company in the light of that representation.”
The reference to a claim by afterthought arose because at the end of his closing submissions, Mr Barden for Mr Frenkel submitted that if Judge Tipples decided that the 2004 agreement was between Mr Bell and Inc then Mr Frenkel was entitled to a declaration to that effect, relying on CPR Part 16.2(5). That provides that “The court may grant any remedy to which the claimant is entitled even if that remedy is not specified in the claim form”. However, Judge Tipples refused to grant such relief, saying that it had been no part of Mr Frenkel's pleaded case or indeed any of his evidence, that the agreement was made between Inc and Mr Bell.
It was common ground before me that the 2004 agreement also set out the trading position between the two companies, so that UK would trade in Europe including the United Kingdom and Inc would trade elsewhere. Equipment would be supplied between the two companies at cost and profits made by both companies on UK's products would be pooled.
Inc was not a party to the proceedings, and now says that Judge Tipples did not address the issue central to the present proceedings, namely whether the agreement which she found was formed in 2004 subsisted beyond 2010. Inc accepts that that part of the agreement, or agreements, relating to trading did not so subsist but says that that part relating to share ownership and profit distribution did.
The claimants accept that the effect of the 2004 agreement was as found by Judge Tipples. However, they say that that agreement was altered by the conversations between Mr Bell and Mr Frenkel in February and March 2010, during which they assert that Mr Frenkel was acting with the actual or apparent authority of Inc.
It was not in dispute before me that there was a telephone conversation between Mr Bell and Mr Frenkel in February 2010 and that there was another conversation between the two men in March 2010 when the former visited the latter at his home in California. Unsurprisingly, Mr Bell was concerned about how the falling out would impact on UK. He stayed at the home of Mr Lyampert a short distance away during that visit. Nor is it in dispute that during these conversations Mr Bell was trying to find a way in which Mr Frenkel could work with Mr Lyampert, but Mr Frenkel made it clear that he wanted nothing to do with the latter. Further, Mr Frenkel accepts that at this time he was friendly with Mr Bell and apologised to him for the falling out.
It was during these conversations that Mr Bell says that Mr Frenkel made clear to him that he was dissolving Inc and wanted nothing to do with UK and that the latter business was his to do with what he liked. He accepts that the shareholding was not specifically mentioned, but says Mr Frenkel made clear that he was walking away from UK. Mr Frenkel denies saying these words, although he accepts that he made clear to Mr Bell that he didn't want to work with Mr Lyampert ever again.
Mr Lyampert said that when Mr Bell came back from speaking with Mr Frenkel in March 2010, Mr Bell told him that Mr Frenkel had said he was terminating their relationships, closing Inc's business, that he had no interest in UK and that Mr Bell could have that business.
The claimants say that the effect of that agreement was that Mr Frenkel would have nothing further to do with UK and relinquished Inc's shareholding as well as its entitlement to a share of the profits. He and Mr Lyampert say they then agreed to split the shareholding 50–50. UK has since become a very successful company. In 2018 its annual turnover was £36 million and its annual profits was £1 million. Each of these has continued to grow since.
The claimants also say that it is only when Mr Frenkel found out that Mr Lyampert was involved in UK that he has reasserted Inc's interest. Mr Bell says that he would not have...
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