Peter Brewin v Bathroom Brands Holdings UK Ltd
| Jurisdiction | England & Wales |
| Judge | Mr David Holland |
| Judgment Date | 26 November 2020 |
| Neutral Citation | [2020] EWHC 3210 (Ch) |
| Date | 26 November 2020 |
| Docket Number | Case No: CR-2019-001218 |
| Court | Chancery Division |
[2020] EWHC 3210 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
IN THE MATTER CINTEP DEVELOPMENT LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr David Holland QC
(SITTING AS A DEPUTY JUDGE OF THE CHANCERY DIVISION)
Case No: CR-2019-001218
David Lewis QC (instructed by KEYSTONE LAW) for the PETITIONERS
Fraser Capbell (instructed by SLAUGHTER AND MAY) for the FOR THE FIRST
RESPONDENT THE SECOND RESPONDENT DID NOT APPEAR AND WAS NOT REPRESTED
Hearing dates: 25, 26,29 and 30 June and 3 July 2020.
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.
Mr David Holland QC (SITTING AS A DEPUTY JUDGE OF THE CHANCERY DIVISION)
If this Judgment has been emailed to you it is to be treated as ‘read-only’. You should send any suggested amendments as a separate Word document.
Mr David Holland QC:
INDEX
Contents
| Heading | Paragraphs |
| Introduction | 1–2 |
| Executive Summary | 3–23 |
| The Cast List | 24–37 |
| The Factual Background | |
| Introduction | 38–40 |
| Events leading up to the Heads of Terms dated 8 th August 2014 | 41–126 |
| The Heads of Terms and the formation of the Company | 127–141 |
| Events following the agreements and leading up to Mr Porter's visit to Australia | 142–162 |
| Mr Porters visit to Brisbane | 163–195 |
| The removal of the prototype from Australia | 196–208 |
| Events after 30 th October 2014 and leading up to the Board Meeting on 14 th November 2014 | 209–232 |
| The Board Meeting on 14 th November 2014 | 233–251 |
| Events subsequent to the 14 th November Board Meeting | 252–284 |
| The Law | 285 |
| The relevant sections of the 2006 Act | 286–287 |
| The necessary requirements | 288–291 |
| Unfair Conduct | 292–301 |
| Prejudice | 302 |
| Director duties and unfair prejudice | 303–305 |
| The position of nominee directors | 306–308 |
| The Parties Submissions | |
| The Petitioners | 309–324 |
| First Respondent | 325–353 |
| Discussion and Conclusions | |
| The parties' positions on the viability of the recycling shower project | 354–358 |
| Motivation | 359–361 |
| Was BBHUK mislead as to the state of development of the recycling shower? | 362–393 |
| The reason for Mr Christy's resignation from the Board | 394–399 |
| The reasons behind the decision of Mr Dyhrberg and and Mr Conway-Lamb not to relocate to the UK | 400–413 |
| The matrix of obligations | 414–420 |
| The allegations of unfairly prejudicial conduct | |
| (1) The failure of BBHUK to sign a deed of Adherence to The Shareholders Agreement | 421–424 |
| (2) The Failure to implement a Share Option Agreement | 425–426 |
| (3) The removal of the prototype from Australia | 427–435 |
| (4) The conduct of the Board Meeting on 14 th November | 436–445 |
| (5) The manipulation of the Board Minutes | 446–449 |
| (6) The unilateral decision by BBHUK to withdraw Funding from the Company | 450–454 |
| (7) The failure by the Company to meet it's statutory Accounting obligations | 455–457 |
| (8) The general Meeting of the Company of 15 th November 2017 | 458–459 |
| (9) Conclusion on prejudice | 461–463 |
| REMEDY | 464–469 |
INTRODUCTION
This is a petition for unfair prejudice, under sections 994 to 996 of the Companies Act 2006 (“the 2006 Act”). The allegations arise from the conduct of the affairs of Cintep Development Limited (“the Company”) by the First Respondent (“BBHUK”) through its nominated directors of the Company, Messrs Hance, Riley and de Beer. It is alleged that this conduct was unfairly prejudicial to the Petitioners, Messrs Brewin and Christy.
The trial is of liability only, with valuation to be determined at a separate hearing if I find that unfair prejudice has been established.
EXECUTIVE SUMMARY
The following brief outline of the claim is taken largely from the agreed Case Summary.
The Petitioners, Mr Brewin and Mr Christy, invented patented technology for use in a new water recycling shower system (the “recycling shower”). Technically, Mr Brewin is the inventor of a water recycling shower system and Mr Christy is the inventor of a heat pump recycling shower system. They incorporated an Australian company, Cintep Pty Limited (“Cintep AU”) on 15 th September 2009 for the purpose of developing and commercialising the recycling shower.
Following discussions, in August 2014, BBHUK and the Cintep AU shareholders agreed to enter into a joint venture via a new company, being the Company, to develop and commercialise the recycling shower.
Heads of Terms were signed on 8 th August 2014 by BBHUK and Mr Brewin on behalf of the Cintep AU shareholders (the “Heads of Terms”). On 12 th August 2014, the Company was incorporated. As agreed, the Company Board comprised Messrs Christy (as Managing Director), Brewin, Hance, Riley and de Beer.
On 22 nd August 2014, BBHUK subscribed for 6,493,492 shares in the Company pursuant to the terms of a Subscription Agreement (the “Subscription Agreement”). Under the Subscription Agreement, BBHUK paid £112,000 and agreed, inter alia: (a) to make further contributions into the Company of not less than £1 million between the date of the Subscription Letter and 8 th August 2015; (b) after 8 August 2015, to pay the cost of developing the recycling shower to manufacture and (c) to enter into a shareholders agreement (the “Shareholders' Agreement”) by way of Deed of Adherence (the “Deed of Adherence”).
The initial equity split was 75.5% to BBHUK and 24.5% across the Cintep AU shareholders, some of whom would receive share options in the Company, to be exercised at a later date, which could have increased their minority holding to 37.02%.
The Company acquired technology and the relevant intellectual property rights from Cintep AU.
BBHUK did not however sign a Deed of Adherence to the Shareholders Agreement.
In the months between August and November 2014, as had been agreed, BBHUK requested that Mr Christy and two engineers who were employed by Cintep AU (Mr Conway-Lamb and Mr Dyhrberg) relocate to the UK and offered them terms of employment.
BBHUK contends that during a visit to the Petitioners' premises in Australia in October 2014, their engineers, including a Mr Glenn Porter, discovered fundamental problems with the recycling shower. In summary, BBHUK says that it became clear to Mr Porter during the course of discussions with Mr Christy and the other employees of Cintep AU during that visit that, contrary to what had been stated by or on behalf of the Petitioners in the discussions leading up to the August 2014 agreements, the recycling shower required very substantial further design and development work and that there was no guarantee that the product would ultimately be commercially viable. This is disputed by the Petitioners.
Following that visit, Mr Porter prepared a report dated 3 rd November 2014 which set out Mr Porter's allegedly serious reservations about the recycling shower in terms of compliance with UK legislation, production issues, and costs. The Petitioners say that this report was not shown to, or seen by, them until it was disclosed during these proceedings in April 2019. BBHUK did not follow a suggestion in Mr Porter's report that a feasibility study be undertaken.
The Petitioners dispute the commentary and findings in Mr Porter's report. They say that in 2014 the recycling shower was in the research and development stage and that the funding committed by BBHUK under the Subscription Agreement would have been used to complete research and development so that the recycling shower could be brought to a state in which it could be manufactured and sold commercially.
BBHUK says that in around early to mid-November 2014 its nominated directors of the Company decided to cease all further spending on the joint venture. During a Company board meeting held on 14 th November 2014, Mr Riley on behalf of BBHUK, proposed an indefinite extension to the longstop date of 8 th August 2015 by which BBHUK was required to provide the initial £1 million of funding to the Company under the Subscription Agreement.
Subsequently, on 25 th November 2014, Mr Hance sent an email to the Petitioners and others, communicating BBHUK's decision to cease investment in the joint venture. The Petitioners say that BBHUK breached the Subscription Agreement by, inter alia, unilaterally withdrawing funding of the Company.
On BBHUK's case, it took a commercially sensible and reasonable decision to postpone its funding commitments indefinitely after the fundamental problems with the recycling shower came to light, in circumstances where no reassurance or explanation as to the viability of the product was forthcoming from the Petitioners. BBHUK says that on 5 th November 2014, Mr Christy declared his intention to resign indicating an intention to walk away from the project.
The Petitioners disagree. On their case, acting in its capacity as major shareholder and investor, BBHUK wrongly and in breach of contract unilaterally withdrew from its contractual funding commitment and wrongly and unfairly prejudicially used its nominated Directors to block the Company from pursuing its commercial objective and its legal rights against BBHUK.
The Petitioners allege that BBHUK, by itself and through its nominee directors (Mr Hance and Mr...
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Unfair Prejudice: Flexible But Unpredictable?
...article These cases amply demonstrate the breadth of factual situations in which unfair prejudice can arise: Re Cintep Development [2020] EWHC 3210 (Ch) - a JV company established between an inventor of recycling shower and an investment company that later sought to 'kill off' the enterpris......
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Unfair Prejudice: Flexible But Unpredictable?
...article These cases amply demonstrate the breadth of factual situations in which unfair prejudice can arise: Re Cintep Development [2020] EWHC 3210 (Ch) - a JV company established between an inventor of recycling shower and an investment company that later sought to 'kill off' the enterpris......