Paul Richards and Another v I P Solutions Group Ltd

JurisdictionEngland & Wales
JudgeMrs Justice May DBE,Mrs Justice May
Judgment Date30 November 2016
Neutral Citation[2016] EWHC 2599 (QB)
CourtQueen's Bench Division
Docket NumberCase No: HQ15X04419
Date30 November 2016

[2016] EWHC 2599 (QB)



Royal Courts of Justice

Strand, London, WC2A 2LL


Mrs Justice May DBE

Case No: HQ15X04419

(1) Paul Richards
(2) Keith Purves
I P Solutions Group Ltd

Mr Richard Leiper (instructed by Clyde & Co) for the Claimants

Mr Chris Quinn (instructed by DMH Stallard) for the Defendants

Hearing dates: 1 July, 4 – 7 July 2016

Hand down Judgment 22 July 2016

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.

Mrs Justice May DBE Mrs Justice May

Following a hearing on 5 September 2016 and written submissions thereafter, this further short judgment will deal with the remaining issues relating to damages and costs arising from my earlier decision dated 22 July 2016. All abbreviations used in that judgment are continued in this further decision.


The remaining issues may be summarised as follows:

(1) Whether any further bonus would have been payable to the Claimants during the contractual notice period ending on 29 January 2016, in particular for the quarter ending in November 2015 ("Q4 Bonus").

(2) Whether valuation of the Claimant's shares as "Good Leavers" under the Company Articles of Association should take into account the provisions of Article 13.3.

(3) Interest, costs and payment on account of costs.

Q4 bonus


The Company has produced a spreadsheet setting out the application of the Spur 57 model to the Company figures for the relevant period from which it appears that the only quarter in 2015 to have produced a test-pass was Q3. The Claimants in response have submitted that the calculations contain a number of significant omissions, correction of any one of which would convert the Q4 test-fail to a test-pass. The Claimants have produced re-worked spreadsheets attached to Mr Leiper's written submissions demonstrating how they say the various changes would have impacted the Company's calculations.


In his written submissions in response, Mr Quinn sought to deal with each of the re-worked scenarios. As to the failure to take account of the Q3 bonus being paid, having followed the (written) submissions and painstakingly worked through the detailed spreadsheets, in my view this criticism is only applicable to the "bonus re-credit" scenario where, as the Q1 figures are set out on the basis that £74.5k is not taken in March (such that "non-trading costs" are entered as £10.2k rather than £84.7k) then it would be appropriate to calculate the Q4 position on the basis that £74.5k was taken out after Q3, the bonus test having been passed in that quarter. Once that is done, Q4 becomes a test-fail. However, whilst that is the case for the bonus re-credit re-working, in every other re-worked scenario it appeared to me that the calculations had been done on the basis that the bonuses had been taken in Q1, and that it was right therefore to treat the bonus in Q3 as having been unpaid (there being a notional off-set against the bonuses wrongly taken in Q1).


Whilst therefore, I do not accept that the "universal errors" identified by Mr Quinn at paras B1 and B2 of his submissions apply to all the re-worked scenarios, I have concluded that the other re-workings proposed by the Claimants are either wrong in principle or are based on a false premise as the Defendant has submitted. Thus:

(i) As regards the rent deposit, the question as to whether or not this is, or should have been treated as, an "exceptional item" was not put to Mr Daly when he gave evidence at the first hearing. I heard no evidence on the point beyond his evidence that he did not think it appropriate to add back the rent deposit for the purposes of calculating the bonus. I regarded Mr Daly as a reliable witness and I see no reason to change that view. Moreoever the position that he took, and which the Defendant's current Finance Director apparently also takes, accords with commonsense: a rent deposit is a cash sum paid which, whilst it may be repaid in whole or in part at some point in the future, is for present cash purposes unavailable.

(ii) In my view it is appropriate to factor in to the 2015 calculations a correction for overpayments made by Vodafone in 2015 when considering whether a bonus would properly have been payable in that year.

(iii) I accept that an audit adjustment to the balance sheet for the year to 2014 would not have impacted upon cash movements in 2015. In principle that seems to me to be sensible, as does the Defendant's point made in the letter from DMH Stallard dated 5 October 2016 that the purpose of line 55 "Cash Movement check" in the spreadsheet is to check that the correct adjustments have been made, resulting in a zero value. It follows that I prefer the calculations in the Defendant's unadjusted scenario in this respect.


For these reasons I am not persuaded that the Claimants are due any further bonus payments by way of damages.

Valuation of the Claimants' shareholding


The parties are agreed that as employees who were wrongfully dismissed, the Claimants are entitled to be treated as "Good Leavers" under the Company Articles of Association. By Article 18.3 the Claimants, as "Good Leavers", were entitled to be paid the "Market Value" of their shares. "Market Value" is defined in the Articles as:

"such value as the transferor and (with Investor Consent) the Company shall agree within ten days after the date of the relevant Transfer Notice (or such longer period as shall be agreed between the transferor and (with Investor Consent) the Company) or, failing such agreement, such value as the Independent Expert shall determine pursuant to Article 18.4."


The critical provision for these purposes is Article 18.4, under which the Independent Expert is required to determine the Market Value:

"..on the basis which, in the Independent Expert's opinion, represents the market value of the Leaver's Shares at the Leaving Date as between a willing seller and a willing buyer as if the entire issued share capital of the Company were being sold in accordance with these Articles and, in making such determination, the Independent Expert shall ignore the fact that such Leaver's Shares may represent a minority interest and may be subject to the compulsory transfer requirements of Articles 17 (Transfers of Shares) and 20 (Tag Along and Come Along)"

Further, by Article 18.4.3:

"the certificate of the Independent Expert shall, in the absence of manifest error, be final and binding"


The parties were unable to agree the Market Value (as defined) of the Claimants' shares, accordingly they jointly instructed Ernst & Young ("E&Y") to act as Independent Expert in accordance with the Articles. Notwithstanding that appointment, there remain, it seems, two issues for me to determine: (i) the date to be taken for the valuation, being either 29 July 2015 when the Claimants' employment was (wrongfully) terminated or 29 January 2016 when their contractual period of notice would have otherwise have expired; and (ii) whether the provisions of Article 13.3 are properly to be taken into account in determining Market Value.

(i) Valuation date


Article 18.4 set out above refers to "Leaving Date" as the date for valuation. "Leaving Date" is defined in the Articles as follows:

"… the date on which the relevant person becomes a Leaver, which in the case of any Shareholder who becomes a Leaver by virtue of any person ceasing to be an Employee shall be the Termination Date in relation to such Employee"

"Termination Date" is defined differently according to the circumstances under which an employee leaves the Company, the relevant provision in the Claimants' case being:

"(c) where the Employee concerned is a director and an employee of any Group Company, the date on which the Employee's contract of employment with any Group Company is terminated"


The circumstances under which an employee becomes a "Good Leaver" are set out in the definition section of the Articles, the material part of which provides as follows:

""Good Leaver" means:

(a) A person (other than a Bad Leaver) who ceases to be an Employee where such cessation occurs for one of the following reasons:

(iii) the termination of that person's employment by the employing company:

(A) In circumstances that are determined by...

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