Paul Durose v Tagco BV
| Jurisdiction | England & Wales |
| Judge | Bird |
| Judgment Date | 25 November 2022 |
| Neutral Citation | [2022] EWHC 3000 (Ch) |
| Docket Number | Case No: CR-2019-MAN-001044 |
| Court | Chancery Division |
[2022] EWHC 3000 (Ch)
HIS HONOUR JUDGE Bird
(SITTING AS A JUDGE OF THIS COURT)
Case No: CR-2019-MAN-001044
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN MANCHESTER
INSOLVENCY AND COMPANIES LIST (ChD)
The Civil Justice Centre
Manchester
Martin Budworth (instructed by Excello Law LLP) for the Petitioners
Mark Harper KC and Matthew Parfitt (instructed by Addleshaw Goddard LLP) for the First and Second Respondents
The Third Respondent did not appear and was not represented
Hearing dates: 20–23 and 26–30 September 2022
APPROVED JUDGMENT
Introduction
Gas Tag Limited (“the company”) was incorporated on 12 February 2015. Its purpose was to market, sell and exploit the potential of a novel and life-saving gas safety product, a small tag containing a NFC (near field communication) chip which would be attached to a domestic boiler. NFC is a wireless technology which allows the transfer of data between two NFC enabled devices. The company created a smartphone app for gas engineers which would allow them to access the gas tag data. Such data would detail service records and other relevant information. The data would evidence compliance with gas safety checks and build a database of work carried out at a given property.
The company entered administration on 14 October 2020 and was dissolved on 18 January 2022. For the purposes of this petition, it was restored to the register on 17 September 2022.
This judgment deals with an unfair prejudice petition issued by Mr Paul Durose and then adopted by the second to sixth Petitioners. In brief summary, the petitioners say that a private equity investor engineered an insolvency event which allowed it to trigger certain enhanced voting rights and then issue to itself a large number of shares thereby giving it an overwhelming majority and so effective control of the company. In addition, Mr Durose says he was unfairly excluded from the management of the company. The Petitioners invite me to take account of certain assurances which they say led to a “ legitimate expectation” (which the court should uphold) that the enhanced voting rights would only be triggered as a last resort if the company was “ about to go under”. The Respondents deny any unfair prejudice and assert that any actions taken by the investor were in any event not concerned with the management of the affairs of the company.
The Trial
The trial took place over 9 days. The parties agreed that I should determine if there has been unfairly prejudicial conduct before considering what, if any, remedy might be granted. Although there are expert reports, the issue of expert evidence has therefore been put off. The parties suggest that I can decide (if the Petitioners succeed in establishing conduct in the management of the company which is unfairly prejudicial to them) the point at which share valuation should take place.
The Parties
The petitioners are Paul Durose (“P1”), Richard Foy (“P2”), Paul Davies (“P3”), Edward McDonald (“P4”), Thomas Green (“P5”) and Barry Witter (“P6”).
The petitioners subscribed for shares in the early days of the company. The original shareholders included Stephen Ullathorne (“SU”) and George Dutton (“GD”). Neither is a party to this Petition. SU issued a separate petition which has been compromised on confidential terms and GD appeared as a witness for the Respondents. He was the finance director of the company and is a chartered accountant. I did not hear from SU. Phil Goodwin was the chair of the company until August 2019. He is not a Petitioner, and I did not hear evidence from him. I read the agreed witness statement of Stacey Goodwin who was P1's personal assistant.
The first respondent (R1) is Tagco BV, a special purpose investment vehicle incorporated under the laws of the Netherlands. It held shares in the company following an investment by the second Respondent, Waterland Private Equity Fund VI CV (“Waterland”). The company is the third respondent. Waterland Private Equity Investments BV is a fund manager based in the Netherlands. Waterland is one of its funds. Waterland Private Equity Ltd (“WPE”) is a UK adviser to Waterland dealing with UK investment opportunities and ongoing UK investments. The team allocated by WPE to the company comprised (in order of seniority) Andy Scaife (“AS”), Ryan Hallworth (“RH”) and Calum MacEwen (“CM”). Hans Scheepers is a member of the senior management team at Waterland.
Structure of this judgment
I will deal with the evidence I heard at paragraphs 10 to 24 and then deal with the chronology of events as I find them to be by reference to the evidence and to the disclosed documents at paragraphs 25 to 120. I set out the pleaded basis of the Petitioners' claims at paragraphs 121 to 129 (and deal there with an application to amend). At paragraphs 130 to 143 I set out the law and at paragraphs 144 to 152 I set out some initial but important findings in respect of the Petitioners' case. At paragraphs 153 to 180 I deal with the issues and then at paragraph 181 and onwards I express my final conclusions.
In reaching my findings and in setting out the chronology of events, I have borne in mind that in a case such as this, disclosed documents are likely to be of far greater assistance than oral evidence.
Evidence
I heard oral evidence from P1 and P3 to P6, Mr David Holden-Locke, Michael Jones and Stephen Collins for the petitioners. I did not hear from Mr Foy. He served a witness statement in accordance with directions but did not appear. For the respondents I heard from RH, GD and CM.
The principal witness for the Petitioners was P1. I am content to accept RH's description of him as bright, energetic, optimistic, passionate and a “classic entrepreneur”. He had strong confidence in the product and assumed that having been introduced to the product “ people would sign up the very next day”. He thought “ it was all going to be a bed of roses; everybody would take the product and cash would come in”. His confidence in the product, and so in the future success of the business, was overwhelming. It was also misplaced. Customers did not buy the product and the cash did not come in. I formed the view that he found it difficult to accept that the excellent opportunity presented by the product had been lost. His zeal and confidence in my view clouded his recollection of events. I reached the view that much of what he said was unreliable.
Mr Holden-Locke is a public affairs consultant retained by the company. Mr Jones is the regional managing director for Gallagher a large insurance broker. Both gave evidence about the future prospects of the product. Mr Holden-Locke formulated a political strategy for the company, arranging access to MPs and Ministers in Scotland as well as in Westminster, lobbying amongst other things to reduce VAT on gas safety products. Mr Jones was working to bring the product to the attention of insurers who might have promoted and perhaps supplied it to homes they insured (in the same way, as he told me, insurance companies had promoted fire alarms 25 or 30 years ago). Each worked hard on the project in a professional capacity, and each gave their evidence carefully and truthfully. Their evidence corroborated the accepted view that the product had a real potential. Their evidence did not assist with issues of unfair prejudice.
It was striking that, P1 aside, the petitioners had no understanding or knowledge of the dispute that brought them to court. None was at all troubled by that fact and each was happy to accept it when questioned about it by Mr Harper KC and Mr Parfitt (who cross-examined P4 and P5). I formed the view that each petitioner was an unwavering supporter of all that P1 said and did. Each had followed him into the litigation because of a blind and deep faith in the viability of the product and a profound trust in him. I did not find the evidence of the petitioners (other than P1) particularly helpful.
RH and CM on the other hand, were impressive and balanced witnesses who gave their evidence in a dispassionate and professional manner. Unlike the petitioners, they had no emotional attachment to the company. They saw the potential of achieving a good return on the Waterland investment, but it seemed to me that they were acutely aware that the investment they oversaw was far from risk-free. They are in effect professional investors. Their interest was in making money, not friends. I formed the view that whilst RH was clearly on good terms with P1, he and CM maintained a professional working relationship with the Petitioners and were very conscious of their responsibilities as directors of the company (RH for a longer time than CM). I formed the view that GD was also an impressive witness. He, like RH and CM took an objective and professional view of what had happened and gave his evidence clearly and persuasively.
I did not hear evidence from SU or Mr Adrian Webb, both of whom played a significant role in later attempts to raise finance. Neither did I hear from Mr Rathbone, the company's solicitor who was actively involved with those later attempts to raise finance.
Mr Foy's evidence: its admissibility and its weight
I was told that Mr Foy, who lives in Dubai (but gives an address in Liverpool in his witness statement), was unable to attend the trial because he was too unwell to travel. No real explanation was given as to why a remote video link could not be arranged.
To support Mr Foy's claim that he was too unwell to travel, I was shown 2 medical reports. One referred to an operation in Dubai on 31 July 2022 to correct a deviated nasal...
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