Taylor Goodchild Ltd v Scott Taylor
| Jurisdiction | England & Wales |
| Judge | Mr Justice Snowden |
| Judgment Date | 24 July 2020 |
| Neutral Citation | [2020] EWHC 2000 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: BL-2019-NCL-00005 |
| Date | 24 July 2020 |
[2020] EWHC 2000 (Ch)
Mr Justice Snowden
Vice-Chancellor of the County Palatine of Lancaster
Case No: BL-2019-NCL-00005
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN NEWCASTLE
BUSINESS LIST
The Moot Hall,
Castle Garth,
Newcastle-upon-Tyne, NE1 1RQ
Simon Goldberg (instructed by Endeavour Partnership LLP) for the Claimant
Mark Harper QC (instructed by DWF Law LLP) for the Defendants
Hearing dates: 12–13 December 2019
Approved Judgment
Introduction
This is an application issued on 10 July 2019 by the Defendants to strike out the Claimant's Particulars of Claim on the ground of res judicata and/or as an abuse of process pursuant to CPR 3.4, further or alternatively for summary judgment pursuant to CPR 24. The current litigation follows earlier proceedings between the parties and is a salutary warning of what can occur when parties do not ensure that all relevant issues are fully ventilated before the court.
The underlying dispute concerns two solicitors, Mr. Taylor and Mr. Goodchild, who were formerly equal joint owners and the only directors of a limited company engaged in the provision of legal services. Following the deterioration of the business relationship between Mr. Taylor and Mr. Goodchild, the two men decided to divide up the legal business and to go their separate ways. In essence, the dispute arose due to their inability to agree the terms on which that separation would take place.
The company in question, Taylor Goodchild Limited (the “Company”), is the Claimant in these proceedings. Mr. Goodchild remains a director and is now the sole owner of the Company.
Mr. Taylor is the First Defendant. The Second Defendant, Scott Taylor Law Limited (“STL”), is a company set up by Mr. Taylor which is also engaged in the provision of legal services. Mr. Taylor owns all of the issued shares in and is the sole director of STL.
The instant Claim follows on from a petition (the “Petition”) brought by Mr. Goodchild on 21 November 2017 for relief pursuant to section 994 of the Companies Act 2006 (the “CA”). The Petition alleged that Mr. Taylor had acted in a way that was unfairly prejudicial to Mr. Goodchild's interests as a shareholder in the Company. As is conventional, both Mr. Taylor and the Company were respondents to the Petition.
The Petition was heard in July 2018 before the then Vice-Chancellor, Barling J, who handed down his judgment and order on 20 July 2018: see [2018] EWHC 2946 (Ch) (the “Judgment”). Barling J concluded that Mr. Taylor had conducted the affairs of the Company in a way that unfairly prejudiced Mr. Goodchild and that Mr. Taylor's actions in setting up STL and diverting client business to it represented a clear breach of his fiduciary and statutory duties as a director of the Company.
Consequently, Barling J ordered that Mr. Taylor sell his 50% shareholding in the Company to Mr. Goodchild at a price of £170,500 which he determined having considered a report from an independent expert valuer who had been jointly instructed by order of the court. Mr. Taylor subsequently sold his shareholding to Mr. Goodchild on 19 August 2018 and resigned his directorship of the Company on 24 August 2018.
The Company now seeks to recover monies it contends are still owed to it by Mr. Taylor and/or STL, together with damages and/or an account of profits in respect of losses it claims to have suffered as a result of Mr. Taylor's breaches of duty as found in Barling J's Judgment. In response, Mr. Taylor and STL contend that the Company's claims were or should have been determined in the Petition and are thus barred res judicata, or are an abuse of process, or are bound to fail.
Background
The detailed background to this dispute is set out in Barling J's Judgment, and it is not necessary to repeat here the full story of how the dispute arose and developed. However, I shall set out briefly those facts that are relevant to this particular application.
The creation of the Company
Between the years of 2004 and 2011, Mr. Taylor and Mr. Goodchild operated together a firm of solicitors as a partnership. In 2011, they decided to switch the business from a partnership to a limited company, and the Company was incorporated in June 2011.
Mr. Taylor and Mr. Goodchild were the Company's only directors and each owned 50% of the issued shares. Under the Company's constitution, in the event of any disagreement there was deadlock at board and shareholder meetings, meaning that each man had an effective veto over the running of the Company.
Upon incorporation, the Company purchased the business of the partnership for about £900,000. Instead of receiving the purchase price for the partnership's assets in cash, Mr. Taylor and Mr. Goodchild agreed that the money would be treated as a loan by each of them to the Company and it was credited in equal amounts to their respective director's loan account (the “DLAs”).
Each month the two directors drew a fixed sum from the Company, which was debited against their respective DLA. At the end of the year, the intention appears to have been that provided the Company had sufficient distributable profits and could lawfully do so, it would declare a dividend, which would then be paid or set-off against any indebtedness of the directors to the Company on their DLAs. This type of arrangement, to which I shall return, is commonly employed in small private companies, largely for tax reasons.
During the first few years of operation of the Company, Mr. Taylor and Mr. Goodchild both withdrew more than the Company was making in profit, because by May 2016 their respective DLAs were both in debit by substantial sums: Mr. Taylor's by over £200,000 and Mr. Goodchild's by over £180,000. By the end of 2016, the Company's financial position had worsened and no dividend was declared for the years ended November 2016 or November 2017. By the time Mr. Taylor resigned as a director in August 2018, his DLA was in debit by nearly £230,000.
The dispute and the separation of the Company's business
Between 2015 and 2016 the relationship between Mr. Taylor and Mr. Goodchild deteriorated. By the end of 2016, the two men had reached an agreement in principle to divide up the Company's legal business so that (broadly speaking) Mr. Taylor would take the civil work and Mr. Goodchild would take the criminal work. However, they were unable to reach agreement on a number of important aspects of the split.
One key point of dispute between Mr. Taylor and Mr. Goodchild concerned the DLAs and the question of whether to declare a dividend for the year ended November 2016, and if so the amount of that dividend. In brief, Mr. Taylor refused to approve the draft annual accounts ending 30 November 2016 unless Mr. Goodchild agreed to declaration of a dividend that would have eliminated Mr. Taylor's DLA. Mr. Goodchild refused to do so, on the basis that the Company had inadequate distributable profits to eliminate the DLAs, but he offered to agree to the declaration of a smaller dividend for each shareholder of £89,500 in order to enable the audited accounts to be approved. Mr. Taylor refused to accept this and complained that Mr. Goodchild had not provided him with relevant financial information. The result was that no dividend was declared and the Company incurred an additional £29,000 tax liability.
Whilst the negotiations were still continuing, on 31 January 2017, Mr. Taylor incorporated STL. Over the course of the following weeks and months he began removing client files and other documents from the Company's premises and taking them to STL's premises. Mr. Taylor admits that he eventually removed between 90 and 100 files (the “Retained Files”). Many, if not all, of the Retained Files had unbilled work-in-progress which had been done on them and for which the Company would have been entitled to bill its clients (“the Retained Files WIP”).
On 12 May 2017, Mr. Taylor informed Mr. Goodchild that he would cease carrying on any work for the Company with effect from 16 June 2017, and would be taking with him to STL several of the Company's employees, who would also cease employment on 16 June 2017. After giving such notice, Mr. Taylor also wrote to certain clients of the Company informing them that he was no longer working there and inviting them to instruct STL in place of the Company. Although some clients did indeed instruct STL, it also appears that some work may then have been carried out by STL on the Retained Files in place of the Company without the relevant client's express consent.
After Mr. Taylor gave his notice, from 1 August 2017 Mr. Goodchild began drawing £8,000 per calendar month from the Company. In response, in mid-September 2017, Mr. Taylor also paid himself £8,000 from the Company's bank accounts (of which he remained an authorised signatory) which he told Mr. Goodchild was “to keep our positions equal”. In November 2017, Mr. Taylor paid himself a further £8,500 from the Company's bank account, seemingly for the same reason.
After a failed attempt at mediation, the Petition was presented in November 2017 and heard in July 2018.
The valuation evidence
In anticipation that a buy-out order might be made at trial, an independent valuer was instructed. Mr. Andy Poole of Armstrong Watson LLP, was nominated by the court after the parties were unable to agree. He provided his valuation report to the parties on 22 May 2018.
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