Mr Nigel Blunt (Petitioner) v Ms Beverley Jackson and Others

Hearing dates: 10–12 April 2013

Introduction

This is the trial of two preliminary issues as regards an unfair prejudice petition under s.994 of the Companies Act 2006, 1 by order of Registrar Derrett of 26 October 2012.

The company concerned is I Fit Global Ltd ("the Company"). It was incorporated on 29 April 2010 and started trading on 1 September 2010. Its business was the importation from China of fitness/weight-loss vibration equipment and their distribution and sale within the United Kingdom.

The Company ceased trading in about May 2012. It seems that an equivalent business has thereafter been carried on by a separate company, I Fit Worldwide Ltd, which was incorporated on 17 January 2012 and is run by the 1 ^st Respondent, Ms Beverly Jackson. The Petitioner, Mr Blunt, has no involvement with I Fit Worldwide Ltd.

Ms Beverley Jackson was involved in setting up the Company. When it was established, she and Mr Blunt were the Company's two directors. The 2 ^nd Respondent, Mr Ian Jackson (who is not related to Ms Jackson but is now her personal partner) became an additional director in September 2010. Until late in the week before the trial, the Respondents were represented by solicitors, DAC Beachcroft LLP ("Beachcroft"), who prepared their Points of Defence to the Petition served on 21 August 2012. However, last week, Beachcroft came off the record and the Jacksons (if I may so refer to them) have since acted in person and represented the Company.

A major issue in this case is whether Mr Blunt is or ever was a shareholder in the Company. He contends that he is a 50% shareholder with Ms Jackson and that they established the Company on this basis. Ms Jackson denies that Mr Blunt was ever a shareholder. That is the first of the two preliminary issues.

As well as being a director, Mr Blunt was employed by the Company and paid a salary. He was dismissed from his employment on 17 November 2011 and effectively removed as a director from that date. Mr Blunt brought the claim for unfair and wrongful dismissal, which was determined by the Employment Tribunal in Sheffield on 21 December 2012 with a judgment in Mr Blunt's favour. The Company was represented in those proceedings ("the employment proceedings") by Mr Jackson and both Ms Jackson and Mr Jackson there gave evidence.

It seemed to me that there was potential overlap between some of the factual issues raised in the employment proceedings and in these proceedings, albeit that the relief sought in the present proceedings is very different. In that regard, I consider that it is not appropriate in these proceedings to go behind any findings of the Employment Tribunal: see my judgment in Shah v Shah[2010] EWHC 313 (Ch) at [74]–[86]. That is particularly the case when, by their Points of Defence to the Petition, the Respondents expressly rely on the Company's response to Mr Blunt's claim in the Employment Tribunal. However, neither side had obtained from the Employment Tribunal a statement of the reasons for its decision. Accordingly, in the course of the

The second preliminary issue ordered to be tried is whether, if Mr Blunt is a shareholder, the matters complained of in the Petition are grounds for an order under s.994. That has been interpreted as meaning whether unfair prejudice has been established.

Although there were specific allegations of financial misappropriation to be addressed, it seemed to me that they arose largely as a result of Mr Blunt's suspicions about what was going on as he felt that his attempts to have proper discussions regarding the financial circumstances of the business were rebuffed. On Mr Blunt's evidence, his primary complaint of unfair prejudice emerged as being one of exclusion from the management of what was supposed to be in the nature of a joint venture between the two 50% shareholders. Ms Jackson's response was that it was not appropriate for him to be involved since he was never a 50% shareholder or indeed a shareholder at all, just a director with specific responsibilities on the importation side of the business. Ms Jackson strongly rebutted in cross-examination each of the allegations that Company money was used for personal gain or an improper purpose, but she accepted that Mr Blunt was excluded from any decisions concerning the Company following his dismissal in November 2011, since he was then removed as a director. Further, Ms Jackson accepted that if the court did find that Mr Blunt held 50% of the shares, she did not wish to work with him in the business and that he should be bought out. That was subject to the important caveat that the business ceased to trade on May 2012 and the Jacksons stated in a brief written statement to the court that it is now worthless. However, in that regard, if Mr Blunt was found to be a shareholder, much would depend on the date on which his shares should be valued for the purpose of an order for purchase under s.996(2)(e), a matter on which the court has a broad discretion. The profit made by the Company in its first six month trading to 30 April 2011 was a little over £22,000 with net assets of £17,205. No accounts were ever prepared for the period 1 May 2011–30 April 2012. I also do not know whether any assets were transferred, and if so on what basis, from the Company to I Fit Worldwide Ltd when the Company ceased trading.

Disclosure and Evidence

On 17 July 2012, Registrar Derrett made an order for standard disclosure, to be provided by 25 September 2012. However, it became apparent in the course of the trial that disclosure was seriously deficient on both sides. Mr Blunt wished to refer to information connected with his tax returns, and had indeed supplied his solicitors a week beforehand with documents comprising his accountant's personal tax computation, but those had not been disclosed. This emerged in the course of his evidence. The documents were obtained during the day and, at the Respondents' request, further specific disclosure was ordered of his actual tax returns which were then provided.

The failure of disclosure by the Jacksons, although on the face of the witness statements apparently concerning very material documents, assumed less significance as the hearing progressed.

In her order of 26 October 2012 directing the trial of preliminary issues Registrar Derrett also ordered that witness statements be exchanged by 21 January 2013. The Respondents were not able to exchange on that date and their solicitors were still not in a position to serve witness statements at the beginning of April. With the trial looming, Mr Blunt therefore brought an urgent application heard by Chief Registrar Baister on the Friday before the start of the trial, 5 April 2013. The Chief Registrar made an order that exchange take place by 5 pm that day, failing which the party in default be debarred from presenting or defending the Petition.

In addition to his witness statement of 14 February 2012 served with the Petition, Mr Blunt had made a further witness statement dated 31 January 2013 that was then served. The Respondents for their part served witness statements from Ms Jackson, Mr Jackson and further short witness statements from Ms Jackson's daughter, Ms Katie Moore, and a Mrs Jane Wattam, who worked for the Company. (There was also a very brief witness statement from Ms Lucy Moore, Ms Jackson's other daughter, who was not called to give evidence.)

However, the witness statements from Ms Jackson, Mr Jackson and Mrs Wattam, apart from the final paragraph 23 of Ms Jackson's witness statement, are not directed at the issues on the unfair prejudice petition but go to what were clearly issues in the employment proceedings. The Court was provided with the witness statements served in those proceedings, and it seems that apart from the final paragraph of Ms Jackson's statement which is material, and a further sentence in Ms Moore's statement, the Respondents' witness statements in these proceedings very substantially reproduce the statements made in the employment proceedings. In particular, the witness statements do not seek to explain the various documents on which Mr Blunt relies in support of his contention that he was a shareholder or indeed make any reference to those documents at all.

In the light of this unfortunate history, and having regard to the fact that the Jacksons were represented until very recently and still had solicitors acting at the time when their evidence should have been served, I did not think it right to permit them to give evidence in chief that went beyond their witness statements. To do so would have defeated the purpose of the direction for service of evidence and the Chief Registrar's "unless" order, and would have caused unfair disadvantage to Mr Blunt. But since Ms Jackson, followed by Mr Jackson, conducted the cross-examination of Mr Blunt, inevitably aspects of what would have been in...