Philip Brown v Stephen Bray
| Jurisdiction | England & Wales |
| Judge | Halliwell |
| Judgment Date | 29 August 2019 |
| Neutral Citation | [2019] EWHC 2304 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No 3168 of 2017 |
| Date | 29 August 2019 |
[2019] EWHC 2304 (Ch)
His Honour Judge Halliwell sitting as a Judge of the High Court
Claim No 3168 of 2017
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN MANCHESTER
INSOLVENCY AND COMPANIES LIST (ChD)
In the Matter of Audas Group Limited
And in the Matter of the Companies Act 2006
Manchester Civil Justice Centre
1 Bridge Street West
Manchester M60 9DJ
Mark Harper QC and Eleanor Temple (instructed by Gunnercooke LLP) for the Petitioner
Edward Davies QC (instructed by Ison Harrison) for the First and Second Respondents
Hearing dates: 29 th, 30 th April, 1 st, 2 nd, 3 rd, 7 th, 8 th, 9 th, 22 nd May 2019
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.
HH Judge
(1) Introduction
The Petitioner, Mr Philip Brown (“Mr Brown”), is a minority shareholder of the Third Respondent, Audas Group Limited (“AGL”). He maintains that the affairs of AGL have been conducted by the First Respondent, Mr Stephen Bray (“Mr Bray”), and the Second Respondent, Mr Philip Sharp (“Mr Sharp”) in a manner unfairly prejudicial to his interests. Relying on the provisions of Sections 994 and 996 of the Companies Act 2006, Mr Brown thus seeks an order requiring them to purchase his shares together with certain other relief.
For ease of reference only, when referring to Messrs Brown, Bray and Sharp collectively, I shall refer to them as “the Parties”.
AGL was incorporated on 19 th December 2012 as a holding company for two other companies, Audas Project Management Limited (“APML”) and Sigma (Leeds) Limited (“Sigma”). APML carries out turn-key fit out services and project management, historically sub-contracting some of its work to Sigma.
AGL has an issued share capital of £1,002 divided into 999 £1 ordinary shares — denoted as “A” ordinary shares — of which the Parties hold 333 shares each, and three “C”, “D” and “E” ordinary shares of £1 separately held by their wives, Mrs Samantha Bray, Mrs Kirsten Brown and Mrs Victoria Sharp.
Mr Brown maintains that AGL is a “quasi-partnership” and that, contrary to his “legitimate expectations”, he has been dismissed as an employee and removed as a director without any offer or provision for the fair value of his shares. He also maintains that, by paying staff bonuses, employing staff, entering into a compromise agreement and concluding transactions to a value of over £10,000 without his consent, Messrs Bray and Sharp have committed breaches of the terms of a written shareholders' agreement (“the Shareholders Agreement”) in respect of AGL.
Messrs Bray and Sharp dispute the pertinence and accuracy of the propositions that AGL is a “quasi partnership” and Mr Brown is entitled to “legitimate expectations” in relation to his office and status as a director and employee. They contend that the putative breaches of contract were part of a settled practice and, by failing to provide his consent to the transactions, Mr Brown was himself acting unlawfully. In any event, they maintain that Mr Brown has himself committed breaches of the Shareholders Agreement and, following a board resolution requiring him to serve a transfer notice in respect of his shares for £1 each, he is obliged to do so by virtue of AGL's Articles of Association. There is thus a counterclaim for specific performance.
The trial before me was and is for the determination of all issues of liability only under District Judge Richmond's directions dated 2 nd October 2018. Mr Mark Harper QC and Ms Eleanor Temple represented Mr Brown. Mr Edward Davies QC represented Messrs Bray and Sharp. As a party to the proceedings, AGL has disclosed relevant documentation but it has not advanced a positive case and it was not represented at the trial before me.
(2) Factual sequence
Mr Brown is a quantity surveyor. Between 2000 and April 2002, he worked, as such, for Styles & Wood Limited (“Styles & Wood”). Mr Bray also worked for Styles & Wood, as a project manager. They worked together on a number of projects. In April 2003, Mr Brown joined Morris & Spottiswood Limited (“Morris & Spottiswood”) as a senior quantity surveyor following contact from Mr Bray who was, by then, employed by them as operations director. Mr Brown was promoted to commercial manager and, in 2005, Mr Sharp joined as an operations manager.
During 2006, the Parties decided to set up their own business together. On 16 th January 2007, APML was formed. They were each appointed directors, allotted equal shares in the new company and left Morris & Spottiswood to join APML as full time employees. In April 2007, APML commenced in business and has remained in business ever since.
On 25 th March 2008, the Board approved APML's accounts for the year ending on 31 st December 2007. On a turnover of £1,134,809, the company's net profit was £206,357. Directors' remuneration (including pension contributions) was £65,897 and dividends were drawn in the sum of £84,000.
APML's accountants were Cassons LLP. In February 2010, Cassons advised the Parties to enter into a shareholders' agreement. On their behalf, Mr Brown instructed Ms Victoria Bromiley (“Ms Bromiley”), of Napthens solicitors, to attend to the formalities and, in November 2010, Ms Bromiley emailed Napthens' shareholders' agreement checklist to Mr Brown. Mr Brown promptly forwarded the checklist to Messrs Bray and Sharp. Early in January 2011, they attended a meeting with Ms Bromiley at which she took instructions and advised them that, in addition to entering into the shareholders' agreement, they would need to amend APML's articles of association. Ms Bromiley prepared a draft shareholders' agreement for review which was revised following further instructions. New articles of association were also prepared. Having resolved to adopt new articles, the Parties then executed a written shareholders' agreement.
During 2012, negotiations ensued for the acquisition of Sigma, an important sub-contractor. In December 2012, AGL was incorporated as a vehicle for the acquisition. It was envisaged that Messrs Brown, Bray and Sharp would acquire the share capital of AGL with their wives, Mrs Samantha Bray, Mrs Kirsten Brown and Mrs Sharp. This was achieved under arrangements concluded on 4 th April 2013 with AGL acquiring the share capital of APML. At the same time, new Articles were adopted and the parties entered into a shareholders' agreement in respect of AGL. For material purposes, these were essentially upon the same terms as APML's articles of association and shareholder's agreement. By a written agreement dated 20 th December 2013, AGL duly acquired 60% of the share capital of Sigma.
Mr Brown was a director of AGL from the outset. On 21 st May 2013, Messrs Bray and Sharp were also appointed directors in advance of the acquisition of the share capital of Sigma. However, they each remained directors and employees of APML; indeed, APML, remained their sole employer.
In March 2014 or thereabouts, Mr Brown contacted a government funded business support organisation, “Boost Business Lancashire”, for guidance on the future development of the business. He was advised by Mr Hamish Hamilton. Mr Hamilton introduced him to an organisation known as “Vistage” which arranges group meetings and mentoring for members in connection with the management and promotion of businesses. Mr Brown attended a Vistage Open Day and, on 19 th May 2014, he enrolled as a member on behalf of APML. However, he was unsuccessful in eliciting any significant interest or enthusiasm on the part of Messrs Bray and Sharp. Mr Bray, in particular, was sceptical of the value of such organisations.
At this stage, no one had formally been appointed finance director for any company in the Group. Mr Brown had dealt with at least some aspects of the financial management of the companies but his background was as a quantity surveyor. A decision was thus taken to appoint a finance director and, in or about November 2014, Mr John Marland was formally appointed to the role.
In April 2015, Mr Bray advised Messrs Brown and Sharp that he was minded to retire to Australia when he reached 60 years of age, some five years later. He canvassed the possibility of setting up an associated business in Australia and working there for at least two years prior to his retirement. However, having reflected on the matter further, Mr Bray emailed them on 20 th May 2015 to say “pipe dreams are shattered” and, whilst he would review his retirement plans in 5 years, he envisaged he would now aim to retire at 65 years of age.
At this stage, there was nothing in the Parties' exchanges of emails to suggest that their relationship had deteriorated. However, they no longer shared the same outlook or priorities. This was reflected in Mr Brown's continued interest in Vistage. Once his group became active in September 2015, Mr Brown regularly attended group discussions and personally arranged for APML to pay Vistage's fees by direct debit. Mr Brown came to value, in particular, the advice he was being given by Mr Hamilton.
In November 2015, arrangements were made for the Parties to attend a meeting, with Mr Marland, to discuss their business strategy. By then, Mr Sharp's exasperation in relation to issues of management and direction was reflected in an email dated 3 rd November 2015 in which he stressed the importance of ensuring “that we get some productivity out of the meeting and not just a talking shop of ‘ifs’, but's, maybe's (sic) or this and that” and focus on their “business” and “individual strategy”. In the abstract, he also raised the possibility that one of the Parties might leave in which...
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