Richard Anthony Moxon (Petitioner) v James Raymond Litchfield and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hildyard |
| Judgment Date | 12 December 2013 |
| Neutral Citation | [2013] EWHC 3957 (Ch) |
| Docket Number | Case No: 2877 of 2011 |
| Court | Chancery Division |
| Date | 12 December 2013 |
[2013] EWHC 3957 (Ch)
The Honourable Mr Justice Hildyard
Case No: 2877 of 2011
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF LCM WEALTH MANAGEMENT LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006
Royal Courts of Justice
Strand, London, WC2A 2LL
Timothy Collingwood (instructed by Pinsent Masons LLP) for the Petitioner
Geoffrey Zelin (instructed by Shakespeares at trial and by DWF LLP thereafter) for the Respondents
Introduction
The Petitioner, Richard Anthony Moxon ("Mr Moxon"), seeks redress in respect of (a) his removal from office as a director and his exclusion from management of the sixth respondent, LCM Wealth Management Limited ("the Company" or "LCM") and (b) the implementation (or purported implementation) of provisions in the Company's Articles of Association and in an agreement between the Company's shareholders which compel the transfer of Mr Moxon's shares at par value if (as the other shareholders contend) he is to be characterised as a "Bad Leaver" within the meaning of those provisions.
Mr Moxon's Petition ("the Petition") is brought pursuant to section 994 of the Companies Act 2006 ("section 994") on the grounds that his exclusion and the threatened expropriation of his shares (as he characterises it) are or would be unfairly prejudicial to his interests as a member of the Company. He seeks to invoke the broad powers conferred on the court by section 996 of that act ("the Companies Act") for giving relief in respect of the matters complained of if the court is satisfied that his petition is well founded.
As is not untypical of such proceedings, the Petition has been hard fought and contested between the real protagonists, namely Mr Moxon on the one hand and Messrs James Raymond Litchfield ("Mr Litchfield") and Peter Hartley Cook ("Mr Cook") on the other. To explain and justify their treatment of Mr Moxon, Mr Litchfield and Mr Cook have made very serious allegations against Mr Moxon, including allegations of forgery and dishonesty. Mr Moxon, for his part, seeks to depict these allegations as orchestrated and contrived to perfect a long standing plan, born out of personal antipathy between him and Mr Cook and which came to infect his relationship with Mr Litchfield, to find fault in all that he did, freeze him out of any real say in the company and force him to leave.
Put very summarily, it is Mr Moxon's case that:
(1) the Company was founded on the basis of personal relationships, trust and confidence giving rise to equitable obligations which qualify or override the contractual agreements established between the shareholders;
(2) the Company was intended to be run as a partnership, with each of the three key original founder shareholders being entitled to Board participation, and with Mr Moxon and Mr Litchfield as executive directors and Mr Cook as chairman; (Mr Wojciech Tadeusz Kulesza ("Mr Kulesza"), who was introduced by Mr Cook and was one of the original shareholders, was an investor only, and was never intended to become, and never became, a director);
(3) at Mr Cook's insistence, in order to qualify for beneficial tax relief, the original shareholdings were divided so that no one shareholder had more than 30% of the shares; but it was always agreed that after a minimum period Mr Moxon and Mr Litchfield would have the right to acquire some of Mr Cook's and Mr Kulesza's shares to take their combined shareholdings up to 76% (as Mr Moxon and Mr Litchfield had originally proposed before the issue of tax relief arose);
(4) the refusal of Mr Cook and Mr Kulesza, following a dispute as to expenditure by the Company on a marketing event, to abide by their agreement to sell part of their shareholding to Mr Moxon and Mr Litchfield was the beginning of a collapse in mutual confidence amongst the quasi-partners: (to quote a later letter from Mr Moxon) this "set in motion a train of hostility" between (in particular) Mr Moxon and Mr Cook;
(5) this hostility was exacerbated by a falling-out over the way the Company dealt with a Mr Steve Rynton, who was paid to introduce clients to the Company pursuant to an Introducer Contract;
(6) it was further worsened by Mr Cook making allegations that Mr Moxon was wasting Company money on (a) extravagant marketing and (b) personal expenses;
(7) Mr Cook then gradually persuaded Mr Litchfield to side with him and devise a plan "to take Mr Moxon out" by engineering breaches of the shareholders agreements of a nature that justified his dismissal and mandated (under their terms) the transfer to them of Mr Moxon's shares;
(8) Mr Cook and Mr Litchfield found an opportunity in consequence of Mr Moxon becoming involved in a venture arguably in competition with the Company: they said he did so without authority or proper disclosure, though Mr Moxon has throughout denied this, referring in that regard to a letter said to have been signed by Mr Litchfield and authorising Mr Moxon's activities (referred to below and defined as "the June letter");
(9) on the basis of Mr Moxon's allegedly unauthorised involvement in that venture, and in the context of further allegations they made as to the misuse of confidential material belonging to the Company, Mr Cook and Mr Litchfield, with the agreement or acquiescence of the only other ordinary shareholder in the Company, Mr Kulesza, first suspended Mr Moxon and then removed him; and they then characterised him as a "Bad Leaver" (defined later) so as to require him to transfer his shares to them at a nominal consideration; and
(10) faced with the loss of the substantial value of his shareholding and the loss of his directorship and employment, Mr Moxon felt he had no option but to petition the court for relief.
The trial, though confined (pursuant to an order of David Richards J made on 22 January 2013) to issues of liability, and ultimately focused on the question whether or not Mr Moxon was properly characterised as a "Bad Leaver", occupied some 14 days. 11 witnesses were called and cross-examined. A further witness statement made by Mr Robert Balfour McCulloch ("Mr McCulloch", a figure of some importance in the story) was adduced on behalf of the Respondents under a Civil Evidence Act notice after the death of its maker. Another witness statement, made by Claire Lucy Campbell ("Ms Campbell"), who worked at the Company for both Mr Moxon and Mr Litchfield, was also put forward under a Civil Evidence Act notice on grounds of her inability to attend after giving birth by caesarean section.
Mr Timothy Collingwood of Counsel appeared for Mr Moxon; Mr Geoffrey Zelin appeared for Mr Litchfield and Mr Cook; both assisted me greatly. Compendious written submissions were filed in opening and closing. The costs have no doubt been very considerable.
Summary of conclusions and disposition
In the circumstances, and for the reasons I seek to set out below, I have concluded that the Petition is not well founded. I consider that Mr Moxon was guilty of gross misconduct and justifiably characterised as a "Bad Leaver", and there is no basis for the Court's intervention to modify the consequences provided for in the contractual agreements the parties made when the Company was formed.
I am very conscious that this produces a harsh, even draconian, result for Mr Moxon under the provisions for him to transfer his shares for a nominal consideration which I have adumbrated. But he agreed to those provisions: and, in my judgment, he has not demonstrated any sufficient basis for relief from or modification of their effect.
I turn to set out in more detail the factual context, the issues that arise, and the reasons for my conclusions.
Details in relation to the Company
The business of the Company, which was incorporated on 24 March 2003 and began trading early in 2004, has at all times been that of independent financial advice and wealth management. It offers services similar to a family office company, offering financial advice to high net worth individuals.
It is not substantially disputed that the Company was conceived initially by Mr Moxon and Mr Litchfield, but that Mr Cook and, at Mr Cook's suggestion and invitation, Mr Kulesza, provided essential initial funding on terms that qualified each shareholder's investment for tax relief under the government's Enterprise Investment Scheme ("EIS").
Mr Moxon and Mr Litchfield had met whilst employed (though in different divisions) by a financial services company in the north west of England called Scott Lang & Co. ("Scott Lang"). Mr Cook had been a client of Scott Lang.
Mr Cook also introduced the third respondent, Mr Kulesza, as a largely passive investor. Mr Cook also brought in his own ex-wife and Mr Kulesza's wife as entirely passive preference shareholders.
Shareholdings
In their original business plan, Mr Moxon and Mr Litchfield had proposed that they would own 76% of the shares in LCM, with other shareholders holding an aggregate of 24%. Again it is not disputed that Mr Cook's need to ensure (as a condition of his investment) that EIS relief was available not only for his but also other shareholders' fiscal benefit, necessitated a change to this, with Mr Moxon and Mr Litchfield being confined to an aggregate shareholding of 60%.
The ordinary shares in LCM have always been held as follows:
| Mr Moxon | 15,000 shares of £1 each |
| Mr Litchfield | 15,000 shares of £1 each |
| Mr Cook | 12,000 shares of £1 each |
| Mr Kulesza | 8,000 shares of £1 each |
There were also two original 10% preference shareholders, namely Ms Carnell (Mr Cook's ex...
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