Timothy McMonagle v Lee Harvey
| Jurisdiction | England & Wales |
| Judge | Mullen |
| Judgment Date | 21 May 2021 |
| Neutral Citation | [2021] EWHC 1374 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2018-005729 |
| Date | 21 May 2021 |
[2021] EWHC 1374 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (ChD)
The Rolls Building
Royal Courts of Justice
7 Rolls Buildings
London EC4A 1NL
ICC JUDGE Mullen
Case No: CR-2018-005729
In the Matter of Integrated Control Solutions (Eastern) Limited
And in the Matter of the Companies Act 2006
Mr Nicholas Michael (instructed by Fosters Solicitors LLP) for the Petitioner
Mr Jack Watson (instructed by Howes Percival LLP) for the First Respondent
The Second Respondent did not appear and was not represented
The Third Respondent appeared in person
The Fourth Respondent did not appear and was not represented
Hearing dates: 12 th – 15 th and 18 th January 2021
Approved Judgment
ICC JUDGE Mullen
| Section | Paragraph |
| Introduction | 1 |
| The nature of the Company and an overview of the dispute | 5 |
| Procedural Background | 21 |
| The Petition | 22 |
| Points of Defence to the Petition | 24 |
| Disclosure applications and directions for an account | 30 |
| The Cross-Petition | 36 |
| Points of Defence to the Cross-Petition | 38 |
| The amendments to the Petition | 39 |
| Pre-trial matters | 43 |
| The issues for determination | 46 |
| Overarching questions | 47 |
| Issues on the Petition | 51 |
| Issues on the Cross-Petition | 52 |
| The conduct of the trial and the evidence | 53 |
| Mr Timothy McMonagle | 57 |
| Mr Gary Saunders | 59 |
| Mr Toby Hawkes | 65 |
| Mr Matthew Taylor | 72 |
| Ms Rebecca Craske | 75 |
| Mr Lee Harvey | 77 |
| Mr Steven Gill | 79 |
| Legal principles applicable to the section 994 jurisdiction | 85 |
| Section 994 of the Companies Act 2006 | 85 |
| Quasi-partnership | 93 |
| Use of the section 994 jurisdiction | 97 |
| Valuation dates | 105 |
| Minority discount | 107 |
| Was the Company a quasi-partnership? | 110 |
| Breakdown of relationship, establishment of ENJ and alleged mismanagement | 112 |
| Interference with email and deletion of documents | 112 |
| Events in 2015 | 121 |
| Events in 2016 | 123 |
| Events in 2017 | 132 |
| The discovery of ENJ | 132 |
| The 8 th September 2017 meeting and subsequent correspondence | 133 |
| The 31 st October 2017 meeting | 145 |
| The meeting on 17 th November 2017 | 160 |
| The meeting on 4 th December 2017 | 163 |
| The meeting with the employees on 14 th December 2017 | 168 |
| Removal of access to the Addenbrooke's BMS on 19 th December 2017 | 170 |
| Mr Harvey's failure to attend to the affairs of ICS from 2017 | 178 |
| Payments the Partnership account in 2017 | 186 |
| Events in 2018 | 187 |
| The termination of the payment of dividends | 193 |
| Mrs McMonagle's salary | 197 |
| Mr McMonagle's overtime and expenses claims | 200 |
| Tax payments | 210 |
| Mr Harvey's work through the Venn Group | 212 |
| Mr Harvey's alleged competition via BISL | 215 |
| Mr Harvey's resignation as a director | 227 |
| Unauthorised withdrawals by Mr Harvey and chattels allegedly retained | 229 |
| Unauthorised withdrawals | 229 |
| Chattels retained | 231 |
| Historic payments queried in the Cross-Petition | 233 |
| CT Baker Ltd | 233 |
| B&F Mechanical Services Ltd | 235 |
| Johns Slater & Hayward | 236 |
| DG Builders | 237 |
| Conclusions | 238 |
Introduction
This is my judgment following the trial on liability of:
i) an unfair prejudice petition presented pursuant section 994 of the Companies Act 2006 (“the 2006 Act”) on 10 th July 2018 by Mr Timothy McMonagle, as amended on 17 th September 2020 (“the Petition”); and
ii) a cross-petition, also brought under section 994 of the 2006 Act, presented on 5 th August 2020 by Mr Lee Harvey (“the Cross-Petition”).
Both the Petition and the Cross-Petition concern the affairs of Integrated Control Solutions (Eastern) Limited (“ICS” or “the Company”).
Mr McMonagle holds 25 of the Company's 100 issued shares and, since presentation of the Petition, has become its sole director. The Petition names as respondents:
i) Mr Harvey, who is Mr McMonagle's former co-director and is the holder of another 25 shares in ICS;
ii) Mrs Tracey McMonagle, who is Mr McMonagle's wife and holds 25 shares;
iii) Mrs Maria Harvey, who is Mr Harvey's wife, from whom he is separated, who holds the remaining 25 shares; and
iv) ICS itself.
The Petition does not seek relief against any respondent other than Mr Harvey. As originally presented, it simply sought an order that Mr Harvey sell his shares to Mr McMonagle, at a price to be determined, with a discount to reflect that Mr Harvey's holds only a minority of the Company's shares and taking account of the unfairly prejudicial conduct of ICS's affairs alleged therein. As I shall explain, it was amended, rather late on in the life of these proceedings, to include further allegations of unfair prejudice and additional relief.
The Cross-Petition seeks an order that Mr McMonagle and/or Mrs McMonagle and/or the Company purchase Mr Harvey's shares, without a minority discount, and taking into account the unfairly prejudicial conduct of ICS's affairs alleged by Mr Harvey. Although the Cross-Petition annexes a “counterclaim” that seeks relief against Mrs Harvey the Cross-Petition makes it clear that no relief is sought against her.
As will be clear from the above, I will refer to the individual parties by their names rather than their roles in either set of proceedings.
The nature of the Company and an overview of the dispute
The Company was incorporated in 22 nd February 2001 as Tometex Enterprises Limited. Mr McMonagle and Mr Harvey were appointed as directors on 12 th April 2001. Mr Harvey was appointed as company secretary on the same day. The Company changed its name to its present style on 1 st May 2001. 50 shares were allotted to Mr McMonagle on 14 th August 2001 and 49 were allotted to Mr Harvey on the same day. The single share allotted to the formation agent on incorporation was transferred to Mr Harvey at the same time.
ICS's business was and remains the installation of building management systems, including in the healthcare and university sectors. As I understand it, a building management system (“BMS”) allows for the control of various aspects of a building's operation, which might include temperature, security and lighting.
In 2000 Mr McMonagle and Mr Harvey were working at a company called ECS (Anglia) Limited. It was whilst working there that they decided to go into business together. Mr Harvey's position is that this was initially carried on by a partnership, which they referred to as “the ICS Partnership” (“the Partnership”), which commenced trading in February 2001. He and Mr McMonagle subsequently incorporated the Company, to which the business of the Partnership was transferred. Mr McMonagle contended in his statements of case that the Partnership was formed after the incorporation of the Company as a non-trading body for the purposes of receiving dividends in an tax efficient manner.
In 2004, the Company began to employ Mrs McMonagle and Mrs Harvey and it grew to have 24 employees at the date of presentation of the petition. Mrs McMonagle and Mrs Harvey received modest remuneration for their employment, each receiving a little over £800 a month. In 2017, Mr McMonagle and Mr Harvey transferred half of their respective shareholdings to their wives, with the result that each couple held 50% of the issued share capital. Mrs McMonagle and Mrs Harvey also became partners in the Partnership.
Mr McMonagle and Mr Harvey also received modest salaries of around £300 a month. The bulk of their monthly remuneration came from what were described in the evidence as “dividends” determined by an assessment of monthly performance in accordance with the articles of association. In reality these were loans from the Company pending the proper declaration of a dividend in accordance with the Companies Acts. I shall, however, refer to this element of the remuneration as the parties have done themselves. In the period prior to the final breakdown of the relationship between Mr McMonagle and Mr Harvey in 2017, they each received £2,814 by way of “dividend”. These payments came to an end in December 2017 in the circumstances that I shall describe.
In 2017 Mr and Mrs Harvey's marriage broke down. Mr McMonagle discovered in around August of that year that Mr Harvey had been operating a competing sole trader business under the trading style ENJ Control Solutions (“ENJ”), which had undertaken some work that had been quoted for by ICS. Worse, he had been using the Company's material and labour to do so. He also alleges that, as part of this deception, Mr Harvey also set up a secret email address in August 2016 with the domain name “ics-controls.co.uk” (“the Controls Email”) to lead the Company's customers to believe that they were dealing with ICS, the email domain name of which is “ics-eastern.co.uk”. While Mr Harvey denies that this was the purpose of the email address, and there is a dispute as to when the relationship began to break down, there is no doubt that by the end of 2017 or the beginning of 2018 their relationship had deteriorated to the point that it was irreparable.
Mr Harvey ceased to attend ICS's premises by February 2018 and he resigned as an employee on 2 nd April 2018. He did not resign as a director or seek to dispose of his...
To continue reading
Request your trial
-
Timothy McMonagle v Lee Harvey
...follows on from my judgment following the trial on liability on the petition and cross-petition under neutral citation number [2021] EWHC 1374 (Ch) (“the Liability Trial”) and should be read with 2 Following that judgment, the parties instructed Mr Stephen Reed of Price Bailey LLP, a firm ......