Roman Frenkel v Arkadiy Lyampert and Others
| Jurisdiction | England & Wales |
| Judge | Miss Amanda Tipples QC |
| Judgment Date | 13 September 2017 |
| Neutral Citation | [2017] EWHC 2223 (Ch) |
| Docket Number | Case No: HC-2015-004753 |
| Court | Chancery Division |
| Date | 13 September 2017 |
[2017] EWHC 2223 (Ch)
Miss Amanda Tipples QC
Case No: HC-2015-004753
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
The Royal Courts of Justice
The Rolls Building, Fetter Lane,
London, EC4A 1NL
Mr Alex Barden (instructed by Blake Morgan LLP) for the Claimant
Miss Rachel Ansell QC and Mr Matthew Thorne (instructed by O'Melveny & Myers LLP) for the First Defendant
Mr Paul Strelitz (instructed by Owen White Solicitors) for the Second and Third Defendants
Hearing dates: 20, 21, 22, 23, 26 and 28 June 2017
Introduction
The Claimant, Mr Roman Frenkel (" Mr Frenkel"), and the First Defendant, Mr Arkadiy Lyampert (" Mr Lyampert"), are two Russian Americans. They both live in California. They were friends and business partners for the best part of a decade until February 2010 when they fell out. That fall out has led to extensive and very acrimonious litigation. First of all in California in relation to an American company called LA Micro Group Inc and, more recently, in this country when Mr Frenkel issued these proceedings claiming a 25.5% shareholding in the Third Defendant, a company called LA Micro Group (UK) Limited. In this judgment I shall refer to the American company, LA Micro Group Inc, as " Inc" and LA Micro Group (UK) Limited as " the UK Company".
In short, I have decided that Mr Frenkel's claim to a 25.5% shareholding in the UK Company must fail. The agreement to establish the UK Company was made between Inc and Mr David Bell, the Second Defendant (" Mr Bell"), and the agreement was that the shares in the UK Company would be held as to 51% by Inc and as to 49% by Mr Bell. There was no agreement between Mr Frenkel, Mr Lyampert and Mr Bell in the terms alleged by Mr Frenkel, and there is therefore no basis on which he can claim a personal entitlement to shares in the company, let alone a 25.5% shareholding.
Before I explain in detail my reasons for reaching this conclusion it is necessary to say something first all about the UK Company, then the claim itself, and the proceedings in California. Turning first to the UK Company.
The UK Company
The UK Company is private limited company incorporated under the Companies Act 1985. It was incorporated on 27 April 2004 as Windbell Investments Limited (company number 5113241) and, on 11 August 2004, Windbell Investments Limited resolved to change its name to that of the UK Company.
The memorandum of association provides that the UK Company's objects are, amongst other things, to carry on business as a general commercial company, and that the share capital is £1,000 divided into 1000 shares of £1 each. The UK Company's principal activity is the sale of computer products. The articles of association incorporate Table A in the Schedule to the Companies (Table A to F) Regulations 1985 as amended by the Companies (Tables A to F)(Amendment) Regulations 1985, subject to certain specified additions, exclusions and modifications.
On 27 April 2004 one ordinary £1 share in the UK Company was issued to Mr Bell. On 1 July 2004 Mr Bell was appointed as a director and secretary of the UK Company. The other director was A1 Company Services Ltd, which resigned on 17 December 2004. Mr Lyampert was appointed as a director of the UK Company on 3 August 2004. The UK Company's registered office was originally c/o Martin & Fahy, Suites 2 & 4 Dudley House, High Street, Bracknell, Berkshire. Martin & Fahy were Mr Bell's accountants.
In 2008 or 2009 a further ordinary £1 share in the UK Company was issued to Mr Lyampert, and the issue of that share appears in the UK Company's annual return for the period ended 27 April 2009. The actual date on which this share was issued to Mr Lyampert is unknown.
For the period ended 30 April 2005, the UK Company's turnover was £290,396 and the profit on ordinary activities before taxation was £48,517. By the period ended 30 April 2009, the UK Company's turnover and net profit before tax had increased to £1,232,284 and £107,762 respectively and, according to the draft accounts, the UK Company had a turnover of £13,093,166 for the period ended 30 April 2015 and a profit on ordinary activities before taxation of £856,766. Hence this dispute.
The claim
The claim form was issued on 13 November 2015 and, on 23 November 2015, Mr Frenkel was given permission to serve Mr Lyampert in California. The proceedings were served on Mr Bell's solicitors on 18 November 2015, and Mr Bell's defence was served on 21 March 2016. The UK Company was served at its registered office in November 2015.
Mr Frenkel's statement of case
Mr Frenkel's claim is for specific performance of an oral agreement made in 2004. Given that Mr Frenkel was not present when the agreement was made, it is important that I set out the terms of the alleged agreement. The allegations contained in the Particulars of Claim are that:
"[4.] In late 2003 and/or early 2004 there were discussions between Mr Frenkel, Mr Lyampert and Mr Bell about setting up a UK arm of Inc in which all three would be shareholders and directors.
[5.] Later in 2004 Mr Lyampert, together with Mr Alex Gorban [(" Mr Gorban")], a consultant who ran much of the day-to-day business of Inc, flew to the United Kingdom to meet with Mr Bell and to negotiate a deal with him on behalf of Mr Frenkel and Mr Lyampert.
[6.] It was agreed orally between Mr Bell and Mr Lyampert (acting on behalf of himself and Mr Frenkel) that Mr Bell would cause a company to be incorporated in England and Wales, for the purpose of running a UK arm of Inc. It was agreed (" the Agreement") that:
[6.1] The Company would have three directors, who would be Mr Bell, Mr Lyampert and Mr Frenkel.
[6.2] The Company's issued share capital would be owned 49% by Mr Bell, 25.5% by Mr Lyampert and 25.5% by Mr Frenkel.
[6.3] The Company would pay dividends as 50% to Mr Bell, 25% to Mr Lyampert and 25% to Mr Frenkel (or to their nominees from time to time).
[7.] Mr Frenkel had agreed with Mr Lyampert in advance of Mr Lyampert flying to the UK that the proposal would be put to Mr Bell in these terms. On his return Mr Lyampert informed Mr Frenkel that Mr Bell had agreed to the proposal. However, Mr Lyampert told Mr Frenkel (incorrectly) that for Mr Frenkel to become the registered owner of his shares both Mr Lyampert and Mr Frenkel would need to be in the UK to sign relevant documents.
[8.] Pursuant to the Agreement, Mr Bell either caused the [UK] Company to be incorporated, or on or before 1 July 2004 caused its incorporator, Temple Secretaries Limited, to transfer the sole ordinary share of £1 to him, and himself to be appointed as a director…"
It is for Mr Frenkel to prove, on the balance of probabilities, that an oral agreement was made in the terms he has alleged. In any event, no share in the UK Company was issued to Mr Frenkel and he was not appointed as a director of the UK Company.
Based on his pleaded case, Mr Frenkel claims that he is entitled to the following relief, namely:
a. specific performance of the Agreement (as defined in paragraph 6 of the Particulars of Claim) by procuring that he be issued with 25.5% of the issued share capital of the UK Company;
b. further or alternatively, rectification of the UK Company's share register pursuant to section 125 of the Companies Act 2006;
c. further or alternatively, a declaration that Mr Bell and Mr Lyampert hold the 2 issued ordinary shares in the company on trust as to 25.5% for Mr Frenkel;
d. further, specific performance of the Agreement (as defined in paragraph 6 of the Particulars of Claim) by procuring that Mr Frenkel be appointed a director of the UK Company;
e. further, an account or inquiry as to the amount of dividends paid by the UK Company to date and the amount payable to Mr Frenkel;
f. compound interest in the equitable jurisdiction of the Court, further or alternatively interest pursuant to s.35 of the Senior Courts Act 1981;
g. costs.
There is no claim for "further or other relief", but that is not surprising in the light of CPR Part 16.2(5) (see also Civil Procedure (2017), Vol 1 at 16.2.2 (p. 566)). I mention that because, in the course of his closing submissions, Mr Barden, Counsel for the Claimant, said he placed reliance on CPR Part 16.2(5) if I decided that Inc was a party to the oral agreement made in 2004, rather than his client personally. I shall return to this point at the end of the judgment.
In relation to the relief of specific performance sought, the Particulars of Claim do not refer to any of the provisions in the UK Company's articles of association in relation to the issue of shares or indeed any steps necessary to procure the issue of a 25.5% shareholding or appoint a director. I raised this with Mr Barden in opening, but he did not seem to regard this as a matter of particular concern.
At the CMC, and in correspondence in September 2016, Mr Frenkel maintained that this claim was worth £375,000 in respect of his alleged shares in the UK Company, together with £258,000 in respect of unpaid dividends. In a letter dated 22 November 2016 Mr Frenkel's solicitors agreed that the pecuniary value of their client's claim was about £633,000 plus interest.
The key issues
There is no dispute between the parties that in or about August 2004 there was an oral agreement to establish the UK Company, and that Mr Bell should have 49% of the shares in the UK Company. However, what is in issue, and what is at the heart of this case, is who were the parties to the agreement, and who was to own the 51% shareholding in the UK Company. The issues are (as the parties have agreed):
a. Was the agreement to establish the UK Company between (i) Mr Bell, Mr Lyampert and Mr Frenkel? (as Mr...
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