Peter Hook v Bernard Sumner and Ors (Defendant/Applicant)
| Jurisdiction | England & Wales |
| Judge | HHJ Cooke |
| Judgment Date | 27 November 2015 |
| Neutral Citation | [2015] EWHC 3820 (Ch) |
| Docket Number | Case No: HC-2015002939 |
| Court | Chancery Division |
| Date | 27 November 2015 |
[2015] EWHC 3820 (CH)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Rolls Building
7 Rolls Buildings
Fetter Lane
London, EC4A 1NL
His Honour Judge Cooke
Case No: HC-2015002939
Mr M Wyeth QC (instructed by insert name of instructing solicitor firm) appeared on behalf of the Claimant
Mr D Casement QC (instructed by insert name of instructing solicitor firm) appeared on behalf of the Defendants
Friday, 27 November 2015
(2.30 pm)
The claimant in this matter, Mr Hook, seeks permission to continue a derivative claim on behalf of the fourth defendant, a company called Vitalturn Co Ltd, which I will refer to as "the company", against the first three defendants. Although the company itself is a defendant, if I refer to the defendants without distinction, it is to the individuals.
This is a matter to be decided in accordance with section 263 of the Companies Act 2006, which codifies the jurisdiction of the court in relation at least to what are referred to as single derivative claims.
I have been presented with a very considerable volume of material by way of evidence, in the form of documentary evidence, expert evidence on both sides and witness statements, some of which are very lengthy, on behalf of the two sides. It is common ground that the function of the court at this stage is not to conduct a mini trial, let alone to reach findings of fact in relation to matters which are in dispute, and nothing I say should be construed as any such finding of fact.
Furthermore, since I have resolved that I should grant permission to continue the derivative claim, I propose to refer to the facts relatively briefly and only to the extent necessary to explain my reasons.
The individuals are the members, or the former members, of the well known group New Order. That was a group formed in 1980 in succession to a group called Joy Division, which ceased to perform after the death of its lead singer, Mr Curtis. New Order played and toured from then until 1993, and then again in a period between 1998 and 2006. They were extremely successful.
In 2007, personal differences between Mr Hook and other members of the band came to the fore, as a result of which it was decided that the individuals would not work together again on any future material, nor would they perform together.
The limited company was incorporated in 1992. The four individuals are equal shareholders in the company, and all of them are directors of it. They are the only directors.
It is common ground for present purposes that the company owns various trademarks using the name "New Order", and the goodwill in that name, including the right to perform or to permit performance and recording under the New Order name for the future. It also has vested in it the rights to a considerable back catalogue of New Order material created over the years.
This claim arises because on 2 September 2011, the defendants met and undertook a number of transactions in relation to the company without the participation of the claimant. It is accepted that they did so deliberately at a time when they knew he was abroad and so would not be able to participate, and that they did not give him any prior notice of their intentions such that he might participate in them or even make any representations about them.
I summarise those transactions as follows: firstly, a written special resolution of the shareholders was circulated on the spot to the three individual defendants and signed by them. The terms of that special resolution were that the Articles of Association should be amended so that in future the directors could conduct business by means of a written resolution signed by a majority of them rather than, as the articles previously provided, by all of them.
It is accepted that the shareholders' resolution was not circulated to the claimant as required by the Companies Act, although a copy of it was posted to him on the same day. That was plainly too late for him to receive it or take any effective action in relation to it.
The effect of section 291 of the 2006 Act is that failure to circulate the resolution to all the members constitutes a criminal offence, but that the resolution is nevertheless deemed to have been validly passed if it is signed by the requisite majority of the members. In this case of course, the three members concerned were a sufficient majority between themselves, holding 75 per cent of the shares, and it is accepted therefore that the resolution is validly passed.
The consequence of the resolution is that in future, the three defendants, if they act together, can transact any business of the board without a meeting of the board which would require Mr Hook to be involved, and indeed without giving him notice in any other way such as might allow him to participate in it.
Secondly, the three directors, by a written resolution of the directors passed in accordance with the articles as just amended, considered the terms of a trademark licence by which the rights to use the New Order name and trademarks would be licensed to a separate company, then called Top Robe Limited, which was owned and controlled by them. I will refer to the terms of this licence in some more detail below.
The directors resolved that the shareholders should be requested to approve the terms of that agreement, and a further written resolution to that effect was circulated on the spot and signed by the individuals, this time acting as shareholders.
In relation to that resolution, there was the same failure to circulate it to the claimant, but again it is accepted that on signature by the three defendants, the resolution was validly passed. That resolution approves the terms of the trademark licence and authorises the directors to sign it.
Thirdly, the trademark licence was then signed. It is in the bundle and bears the date of 2 September. The claimant knew nothing of this until he was informed by an e-mail sent to his solicitor the following Monday, 5 September. Two days after that on 7 September, Top Robe Limited changed its name to New Order Ltd, which is the name by which it is known at present.
Since that time, the three individual defendants have performed and recorded under the New Order name without the participation of the claimant, although they have involved other musicians, as I understand it on the basis that they participated as session musicians. A considerable number of concerts have been undertaken, the first two of which were on 17 and 18 October 2011, and another in South America in December 2011. It is common ground that since then, the reformed group has been very successful, it has been very well received critically, and is very popular with audiences. The reported income of New Order Ltd since then from these activities has been of the order of £7.8 million.
Plainly this was a preconceived and coordinated scheme. The limited company was acquired by the defendants at the latest in July when the shares in it were transferred to Mr Sumner, the first defendant.
The defendants took advice from solicitors and from Mr Robert Englehart QC, although that advice was taken in a personal capacity and not as the representatives of the company. In consequence of that, the defendants have declined to disclose that advice, or at least to disclose all of it, maintaining that it is privileged and that they have not waived the privilege in that advice. That is a matter which may be disputed in the future.
They also took advice from Saffery Champness, a firm of chartered accountants, again in their personal capacity. The accountants' advice was said to have been given orally at a meeting in June 2011, and was later confirmed in a letter, which has been disclosed, written in December 2011. The defendants also consulted the group's UK-based agents, again presumably doing so in a personal capacity rather than on behalf of the company. But they did not consult the company's normal solicitor, nor the accountants who had previously acted for it, nor the US agent who had played a considerable part in the group's affairs up to that date.
There was thus no advice given to the company or to the directors in their role as directors of the company, and there was no independent consideration of the terms of the proposed agreement. The defendants, however, rely on the advice given to them to support their contention that the terms were reasonable and commercial.
The principal terms of the trademark licence are as follows:
Firstly, it is a worldwide exclusive licence to use the New Order trademarks for activities specified in the schedule. In summary, those activities are: performing and recording under the name New Order, merchandising or authorising merchandise with the New Order name in connection with those activities, obtaining sponsorship for concerts and tours and the like, and publishing books and other material relating to the group.
Secondly, it is for an indefinite term, lasting until terminated by not less than six months' notice which may be given by either party. It is specifically provided, however, that no notice may be given by the licensor, which is the company, so as to expire less than ten years after the commencement of the agreement.
In return for those authorisations, the licencee, now New Order Ltd, agrees to pay a royalty of 5 per cent of its gross revenue from the specified activities. The licence provides that it does not affect the continued exploitation of the...
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