THJ Systems Ltd v Daniel Sheridan
| Jurisdiction | England & Wales |
| Judge | John Kimbell |
| Judgment Date | 26 April 2023 |
| Neutral Citation | [2023] EWHC 927 (Ch) |
| Docket Number | Case No: BL-2019-01446 |
| Court | Chancery Division |
[2023] EWHC 927 (Ch)
John Kimbell KC
SITTING AS A DEPUTY HIGH COURT JUDGE
Case No: BL-2019-01446
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Royal Courts of Justice
Strand, London, WC2A 2LL
David Eaton Turner (instructed by Nelsons) for the Claimants
John Greager, solicitor-advocate, Amanda Hadkiss and Ted Loveday (instructed by Maddox Legal) for the Defendants
Hearing dates: 10, 11, 14, 15, 16, 17, 18 November 2022
Written submissions provided on 27 November 2022, 3 December 2022 and 9 December 2022
APPROVED JUDGMENT
This judgment was handed down remotely at 10.30am on Wednesday 26 th April 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives
Introduction
These proceedings arise from the breakdown in 2015 of the commercial relationship between two men: Mr Andrew Mitchell and Mr Daniel Sheridan. The chosen vehicle for their joint business venture was the Second Claimant, a limited liability partnership (‘ the LLP’). The main issue in these proceedings is whether the notice served on Mr Sheridan on 24 December 2015 expelling him from the LLP was valid or not.
Factual background
Much of the factual background to the dispute is set out in contemporaneous email exchanges. The following section is based on these emails supplemented, where necessary, by witness evidence which put the exchanges in context.
Mr Mitchell is a computer software developer. He graduated from De Montfort University, Leicester in 1994 and has worked in software development since then. He is the sole director of THJ Systems Limited (‘ THJ’), which is an English company incorporated in England in 2007, whose name is derived from the initials of his children. THJ's shares are owned equally by Mr Mitchell and his wife. THJ employs Mr Mitchell full time.
Mr Sheridan is an American citizen and resident. He worked for 20 years as an options trader at the Chicago Board Options Exchange (‘ CBOE’). After retiring from professional trading, Mr Sheridan became a trainer and mentor for members of the public interested in buying and selling options via brokers. He formed his own company to deliver training and mentoring, Sheridan Options Mentoring Corporation (‘ SOM’).
SOM is a company registered in Illinois. SOM delivered training and mentoring in a number of different formats to students, including live programmes (Sheridan TV) and via webinars. Some of the students eventually became mentors and assisted Mr Sheridan and SOM. Mr Sheridan referred to his students and mentees as the ‘SOM community’. SOM has its own website where it offers access to an archive of videos and other materials.
In 2008, Mr Mitchell started to buy and sell CBOE options in his spare time.
In 2009, Mr Mitchell wrote the source code for a piece of software to help him with his own options trading. He originally referred to it as Options Explorer. He subsequently named it OptionNET Explorer (‘ ONE’). The purpose of the ONE software is to display financial information about the performance of options in the market. ONE takes live (or historic) market data and presents it in the form of a table of ‘call’ and ‘put’ positions. These are displayed in side by side graphic representations in the form of a ‘risk profile’.
In May 2009, Mr Mitchell purchased a mentoring package from SOM. There was a waiting list for the course to start. While he waited, Mr Mitchell continued to work on ONE.
When Mr Mitchell started to receive mentoring from Mark Fenton of SOM, he showed the other students and Mr Fenton how he used ONE to monitor his trading positions.
After a few sessions, Mr Sheridan asked to meet Mr Mitchell. The meeting took place by WebEx video in autumn 2009. Both men felt that there might be an opportunity for SOM and THJ to work together. SOM had previously used another software programme to display information to students, OptionVue. Mr Sheridan asked someone in the SOM Community to assess the ONE software. The assessment was very positive.
In 2010, THJ acquired the domain name of a website through which it could advertise and sell ONE. The software was sold in the form of a three month or annual subscription. Mr Mitchell also started to receive enquires from SOM students. Mr Sheridan and SOM entered into an End User Licence Agreement with THJ so that SOM could use ONE.
In the course of 2010 and early 2011, Mr Sheridan and Mr Mitchell conducted sporadic discussions about the terms of a potential formal business arrangement. At some point, it was suggested that the best vehicle for the venture would be an LLP. Mr Mitchell had already incorporated the LLP on 20 January 2010. Both partners engaged lawyers to assist with the negotiations. THJ engaged Browne Jacobson LLP and Mr Sheridan engaged a Mr Doug Rupert of the US law firm, Wildman Harrold.
The LLP Agreement
By 7 April 2011, an agreement was reached on the terms of a Limited Liability Partnership Agreement (‘ the LLP Agreement’). The parties to the LLP Agreement were the LLP, Mr Sheridan and THJ. The Initial Members and Designated Members of the LLP were THJ and Mr Sheridan. Recital A of the LLP Agreement recorded that:
“The Initial Members have commenced business as providers of software and training and education on option strategies”.
The Business of the LLP was defined as:
“The sale, supply and support of the ONE Software together with option strategy training to end users of the ONE Software”.
The members of the LLP were defined as “the Initial Members and such other or additional persons as are admitted as members of the LLP in accordance with this agreement”.
It was agreed that the LLP Agreement should retrospectively take effect from the date on which the LLP was incorporated, 20 January 2010.
It is noteworthy that whilst THJ was a party to the LLP Agreement, SOM was not. However, clause 3.3 of the LLP Agreement granted a qualified exclusive right for SOM to use the ONE software in these terms:
“The Business shall not be conducted with any company that provides education or training in relation to trading options (an “Options Company”) other than SOM save that the LLP shall have the right to conduct Business with an Options Company other than SOM if during the period of the LLP: …. SOM seriously breaches the SOM Software Licence Agreement …”
The Licence Agreement
The reference to the SOM Licence Agreement in clause 3.3 is a reference to an agreement between THJ and the LLP (‘ the Licence Agreement’). The Licence Agreement granted the LLP an exclusive worldwide licence for the period of the LLP Agreement to use ONE for teaching, seminars and presentations.
Clause 2.2 (g) of the Licence stipulated as follows:
“[the LLP] and SOM shall ensure that a clear Copyright Notice is displayed on all iterations of the ONE Software and all documents, presentations, webexes and seminars relating to or containing images of the ONE Software”.
Clause 10.1 of the Licence Agreement provided as follows:
“Without prejudice to any rights that have accrued under this licence or any of its rights or remedies, this licence will terminate with immediate effect if: (a) any party commits a material breach of any term of the LLP Agreement and (if such breach is remediable) fails to remedy that breach as set out in the LLP Agreement”.
The Sub-Licence
By a sub-licence agreement of the same date as the Licence Agreement, the LLP granted SOM a non-exclusive sub-licence to use the ONE software for teaching, webex presentations and seminars.
Clause 2.2 (g) was as follows:
“[SOM] shall ensure that a clear Copyright Notice is displayed on all iterations of the ONE Software and all documents, presentations, webexes and seminars relating to or containing images of the ONE Software”.
Division of profits under the LLP Agreement
It was agreed that any profits made by the LLP would be divided 67.5% to THJ and 32.5% to Mr Sheridan.
It was envisaged that the membership of the LLP might increase beyond THJ and Mr Sheridan. Clause 12 made provision for the admission of new Members “by unanimous agreement” of the then Members.
Decision making
Clause 13 contained provisions for decision making. Clause 13.1 provided:
“The day to day running of the LLP shall be undertaken by THJ and, subject always to clause 13.6, THJ shall have authority to make any day to day decisions as are necessary of the smooth running of the Business of the LLP, including the appointment of new employees”.
Clause 13.3.5 defined the quorum of any meeting as being when both Initial Members are present.
Clause 13.6 reserved certain matters for the “unanimous decision of the Members”. These reserved matters included “any material change to the nature of the Business” and “appointment of any persons as a Member of the LLP. One matter not reserved was the expulsion of a member.
The distinction between day-to-day matters falling within clause 13.1 of the LLP Agreement and those falling within clause 13.6 broadly corresponds to the distinction between ‘ordinary’ and non-ordinary matters in section 24(8) of the Partnership Act 1890:
“Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners, but no change may be made in the nature of the partnership business without the consent of all existing partners.”
Clause 15.2 imposed certain obligations on Mr Sheridan:
“Whilst a member, he shall:
15.2.1 personally give a one hour live webex every other week (26 per...
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