Sprint Electric Ltd v Buyer's Dream Ltd
| Jurisdiction | England & Wales |
| Judge | Richard Spearman |
| Judgment Date | 26 April 2021 |
| Neutral Citation | [2021] EWHC 960 (Ch) |
| Docket Number | Case No: HC-2017-001837 |
| Date | 26 April 2021 |
| Court | Chancery Division |
[2021] EWHC 960 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (CHANCERY DIVISION)
Royal Courts of Justice
Strand, London, WC2A 2LL
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (CHANCERY DIVISION)
IN THE MATTER OF SPRINTROOM LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006
Richard Spearman Q.C.
(sitting as a Deputy Judge of the Chancery Division)
Case No: HC-2017-001837
Claim No: CR-2017-006788
Michael Hicks (instructed by Moore Barlow LLP) for the Claimant
Rebecca Page (instructed by Moore Barlow LLP) for the First Respondent
Anthony Pavlovich (instructed by Blake Morgan LLP) for the Defendants and the Petitioner
Hearing date: 30 March 2021
Richard Spearman Q.C.:
Introduction and nature of the hearing
This is a hearing to determine significant issues relating to costs in these two sets of proceedings. The background to the disputes is set out in detail in my judgment on liability: see Sprint Electric Ltd v Buyer's Dream Ltd & Anor [2018] EWHC 1924 (Ch), [2018] WLR(D) 585) (“the Liability Judgment”).
Following the Liability Judgment, the claim concerning source code and other materials used by Sprint Electric Limited (“SEL”) which had been brought by SEL against (a) a former director of SEL and the author of the source code (“Dr Potamianos”) and (b) Dr Potamianos' service company, Buyer's Dream Limited (“BDL”) (“the Source Code Claim”) proceeded to a trial on quantum (“the Source Code Quantum Trial”). This resulted in a judgment of His Honour Judge Hacon: see Sprint Electric Ltd v Buyer's Dream Ltd & Anor [2020] EWHC 2004 (Ch). On 12 November 2020, HHJ Hacon assessed SEL's damages in the sum of £23,730 (plus interest of £2,578.44) and fixed the sum payable by SEL to BDL and Dr Potamianos at £18,000 (plus interest of £1,898.70), stayed the payment of the balance pending final determination of the Unfair Prejudice Claim (see further below), and ordered SEL to pay the costs of BDL and Dr Potamianos assessed in the sum of £241,129. SEL obtained permission to appeal that costs decision of HHJ Hacon to the Court of Appeal from Newey LJ on 22 February 2021, and the appeal is presently listed to be heard on 14 or 15 July 2021. The essential issue raised by the appeal is whether HHJ Hacon should have deferred the decision on those costs pending determination of quantum in the Unfair Prejudice Claim, so as to enable the value of any “global” offers of settlement covering both that Claim and the Source Code Claim to be taken into account before a final determination is made as to where those costs should fall.
In the meantime, the outcome of the petition presented by Dr Potamianos against (a) Sprintroom Limited, the company of which SEL is a wholly owned subsidiary, (“SRL”) and (b) the holder of the remaining 60% of the shares in SRL (“Mr Prescott”) under sections 994–996 of the Companies Act 2006 (“the Unfair Prejudice Claim”) was appealed by both Mr Prescott and Dr Potamianos. The Court of Appeal (McCombe, Leggatt and Rose LJJ) allowed Dr Potamianos' appeal in one respect, relating to the requirement to assess various offers made by Mr Prescott, but otherwise dismissed both appeals: see Prescott v Potamianos & Anor [2019] EWCA Civ 932, [2019] 2 BCLC 617) (“the Appeal Judgment”). In a passage explaining the reason why Dr Potamianos' appeal was allowed in part, which is also relevant to the issues concerning costs which I now have to decide, the Court of Appeal said at [144]–[145]:
“An evaluation of all the circumstances surrounding the offers shows that none of them rendered Dr Potamianos' exclusion from the Company fair. They could not be relied on to defeat Dr Potamianos' petition and it would make no difference to that conclusion that an expert might now value the shares as at the time the offers were made at less than the £1.34 million or £1 million offered …We do not think that the expert evidence of valuation, whatever its result, will be capable of producing a result that would deny Dr Potamianos any relief upon his petition. That is not to say that the offers made may not have some bearing upon costs questions, depending upon the outcome.”
In due course, the issues of quantum arising from the Unfair Prejudice Claim which had not been agreed were the subject of a further judgment from me: see Potamianos v Prescott & Anor [2020] EWHC 3465 (Ch) (“the Unfair Prejudice Quantum Judgment”). In brief, those issues were resolved by me as follows:
(1) With regard to the Balancing Payment (see the Liability Judgment at [398], and the Appeal Judgment at [105]), at the beginning of the hearing Dr Potamianos was contending for a Balancing Payment of £406,370.67, and Mr Prescott for one of £372,981.13. As the hearing progressed, Dr Potamianos sought a Balancing Payment of £361,810.67. Mr Prescott contended that an invoice for £3,744 should be taken into account for the purposes of the relevant calculation. I accepted that contention, and ordered a Balancing Payment of £361,810.67 – (4/6 x £3,744) = £359,314.67. Accordingly, Mr Prescott substantively succeeded on the issues which were contested.
(2) With regard to quasi-interest on the Balancing Payment, Dr Potamianos sought 3%, alternatively 2%, above base rate. Mr Prescott contended that it would be unfair for the Balancing Payment to be augmented by an award equivalent to interest. In the alternative, he contended for a rate of no more than 1% above base rate. I ruled substantively in favour of Dr Potamianos, and awarded him interest at 3% and from 28 September 2018 (i.e. the Valuation Date in accordance with the Liability Judgment) simpliciter.
(3) With regard to the value of Dr Potamianos' shares in SRL, there was no issue between the parties as to the valuation of one of SRL's principal assets, namely the equity in Peregrine House. However, there were a number of issues concerning the appropriate basis upon which the valuation of SRL's other principal asset, namely the shares in SEL, ought properly to be made.
(4) First, there was an issue as to whether the correct figure for the cost of employing a CEO was, as Dr Potamianos contended, £100,000 for each of the years 2016, 2017 and 2018, or was instead, as Mr Prescott contended, £101,417 for 2016, £103,547 for 2017, and £99,068 for 2018. I decided that issue in favour of Dr Potamianos and observed (at [74]): “It is unfortunate that Mr Prescott considered it worthwhile to take time over this issue”.
(5) Second, there was an issue as to whether the cost of staff to replace Mr Prescott and Dr Potamianos which should be inserted into the calculation was (a) £37,000 for each of the years 2016, 2017 and 2018, as Dr Potamianos contended, or (b) £120,000 for 2016, increased to £122,520 for 2017 and further to £126,564 for 2018, as Mr Prescott contended. I decided that the correct figure was £37,000 plus £45,000 for each of those three years. This constituted, arithmetically at least, a determination which was approximately half way between the rival contentions of the parties.
(6) Third, there was an issue as to whether the saving of the cost of a salesman at £50,000 per annum should be added back for the years 2017 and 2018, as contended by Dr Potamianos. I decided that issue in favour of Mr Prescott.
(7) Fourth, there was an issue as to whether the correct value of SEL's surplus cash was £450,000, as agreed by the experts for both parties, or £755,000 as contended by Dr Potamianos. This was a major item of dispute, as any difference fed directly into the calculation of the total value of SEL. I decided that issue in favour of Mr Prescott. With regard to the arguments advanced by Mr Pavlovich on behalf of Dr Potamianos, I observed (at [110]): “Although these points were attractively put, I am not persuaded that they provide any proper basis upon which to reject the clear, cogent and considered views of not only Mr Prescott's expert but also Dr Potamianos' expert”. Mr Pavlovich relied on this observation in the course of his submissions on costs as demonstrating an acceptance that this attempt to controvert the evidence of the experts was reasonable. As to that, I would not go so far as to say that it was unreasonable, but I do not consider that it was ever promising, and the point of greatest significance is that it failed.
(8) Fifth, there was an issue as to whether the experts' agreed approach towards marketing costs was correct. This was another instance in which Dr Potamianos contended that both experts were wrong. I rejected that contention. In addition, I observed (at [120]) that if Dr Potamianos' invitation for me to revisit the experts' approach to the underlying facts were to be accepted, the consequences for the valuation of Dr Potamianos' 40% shareholding in SRL would be relatively small and that “Even if, contrary to all the foregoing, [Dr Potamianos'] points under this head were right, I question whether they justified the costs of arguing them. This is an instance where Ms Page's criticisms of [Dr Potamianos'] approach seem justified.”
(9) Sixth and seventh, there were issues as to whether and to what extent the value of SEL should be adjusted to take account of (a) the cost of remedial work to the Source Code and (b) the further “significant issues” raised by Mr Prescott and listed at paragraphs 16(i)-16(xvi) of his 5 th witness statement dated 21 April 2020. As to (a), this was a major issue, because the case which Dr Potamianos had to face was that this work would cost “in the region of £468,000”. As to (b), no figure was placed on these matters, whether separately or cumulatively, on...
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