Timothy Smith v Joan Smith
| Jurisdiction | England & Wales |
| Judge | Cawson |
| Judgment Date | 06 May 2022 |
| Neutral Citation | [2022] EWHC 1035 (Ch) |
| Docket Number | Case No: CR-2021-MAN-000159 |
| Court | Chancery Division |
[2022] EWHC 1035 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN MANCHESTER
INSOLVENCY AND COMPANIES LIST (ChD)
IN THE MATTER OF CLIVE SMITH (OXFORD) LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006
Manchester Civil Justice Centre
1 Bridge Street West,
Manchester M60 9DJ
HHJ Mark Cawson QC
SITTING AS A JUDGE OF THE HIGH COURT
Case No: CR-2021-MAN-000159
Neil Berragan (instructed by JMW Solicitors LLP) for the Petitioner
Martin Strutt (instructed by Spires Legal Ltd) for the First Respondent
Hearing dates: 11–14 April 2022
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
HHJ Cawson QC
HHJ Cawson QC:
| CONTENTS | PARAGRAPH |
| Introduction | 1 |
| Witnesses | 10 |
| Factual background and findings in respect thereof | 24 |
| The unfair prejudice remedy | 80 |
| Outline of the parties' respective cases | 88 |
| The authorities | 99 |
| Is Tim's case as to unfair prejudice made out? | 123 |
| Basis of valuation | 141 |
| Share purchase order | 148 |
| Valuation | 150 |
| Conclusion | 165 |
Introduction
By his petition presented on 3 March 2021 (“ the Petition”), the Petitioner, Timothy Smith (“ Tim”), as a shareholder with 20% of the issued share capital of Clive Smith (Oxford) Ltd (“ the Company”), seeks relief pursuant to Sections 994–996 of the Companies Act 2006 (“ the 2006 Act”) alleging that the affairs of the Company have been conducted in a manner unfairly prejudicial to his interests as a member.
The First Respondent, Joan Smith (“ Joan”) is Tim's mother, and the holder of the other 80% of the issued share capital of the Company. Joan remains a director of the Company, together with Heather Franklin who was appointed as a director of the Company on 29 May 2019.
On 20 March 2019, Joan used her position of control in the Company to cause Tim to be dismissed as an employee of the Company, and subsequently, on 29 May 2019, Joan removed Tim as a director by ordinary resolution.
The issue to be determined on the Petition is as to whether, in so acting, or at least in so acting without being prepared to offer to purchase Tim's shares at a fair value not discounted to reflect his status as a minority shareholder, Joan caused the affairs of the Company to be conducted in a manner unfairly prejudicial to the interests of Tim as the only other member of the Company within the meaning of Section 994 of the 2006 Act.
Tim thus seeks an order pursuant to Section 996 of the 2006 Act that Joan purchases his shares at a fair value.
The Petition essentially turns on the issue as to whether the relationship between Joan and Tim so far as the Company was concerned was such that equitable considerations arose between them so as to qualify the right or ability of Joan to exercise her statutory right as a majority shareholder under s. 168 of the 2006 Act to remove him as a director by ordinary resolution without making an offer to purchase his shares at a fair value.
On behalf of Tim, it is argued that such equitable considerations did arise, and that the Company is to be categorised as a quasi-partnership, or company in the nature of a partnership. This is disputed by Joan who maintains that no such equitable considerations arose on the facts of the present case and that the Company is not correctly to be characterised as a quasi-partnership company.
Should I find that Tim is entitled to an order requiring Joan to purchase his shares at a fair value, then there is an issue as to whether the value of his shares ought to be discounted to reflect his minority status, and there are a number of further valuation issues between the share valuation experts called by the parties.
Neil Berragan of Counsel appeared on behalf of Tim, and Martin Strutt of Counsel appeared on behalf of Joan. I am grateful to them both for their helpful written and oral submissions.
Witnesses
I heard evidence from the following witnesses of fact:
i) Tim;
ii) Joan;
iii) Lynne Buchholz (“ Ms Buchholz”), a Chartered Accountant and now a Director of Shaw Gibbs Ltd, accountants and business advisers, the Company's long-standing accountant and financial adviser, who gave evidence on behalf of Joan;
iv) Aaron Bellinger (“ Mr Bellinger”), the operator of an MOT bay on property belonging to the Company between 2006 and 2016, who gave evidence on behalf of Joan;
v) Brian Kearney (“ Mr Kearney”), the owner of the French and Italian Car Centre Ltd, which has carried on business on part of the land owned by the Company, who gave evidence on behalf of Joan; and
vi) Trevor Biswell (“ Mr Biswell”), a Quantity Surveyor who carried out work in connection with the construction of six bedsits on property belonging to the Company, who gave evidence on behalf of Joan.
In addition, I heard expert evidence as to the value of Tim's shareholding in the Company from Sally Longworth (“ Ms Longworth”), a Chartered Accountant instructed on behalf of Tim, and Philip Ewing (“ Mr Ewing”), a Chartered Accountant instructed on behalf of Joan.
As to the evidence of the witnesses of fact, I bear firmly in mind the much repeated observations made by Leggatt J (as he then was) in Gestmin SGPS S.A. v Credit Suisse Limited [2013] EWHC 3560 (Comm) at [15] – [22] with regard to the unreliability of memory, and his caution to place limited weight on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. I consider these observations and this caution to be particularly apt in the circumstances of the present case where:
i) The key events concerning when Tim joined the Company as an employee and director date back some 18 years to 2004 and therefore there is considerable scope for false but honest recollection of events that took place a long time ago;
ii) Tim and Joan having fallen out in 2018 having been on good terms until then, there is, as I see it, a real danger that in seeking to accurately recall events going back many years, they will each quite naturally have done in a way that favours their case, with, for example, Tim subconsciously enhancing or embellishing his recollection of the importance or otherwise of his role in the Company, and Joan doing the opposite and playing down the significance of Tim's role in the Company.
Tim suffers from dyslexia and has been diagnosed as suffering from ADHD, which he informed me resulted in internal self-recrimination and emotional dysphoria. In giving evidence under cross-examination, he had a tendency to give long, and at times somewhat rambling answers to questions, and when interrupted under cross-examination became extremely impatient, explaining that it was a symptom of his ADHD that he could not cope with interruptions to his thought process. However, he was articulate, and came across to me as seeking to give an honest account of his recollection of events subject to the inherent difficulties created by the passage of time. However, the process of seeking to recall events that took place many years ago did, I consider, lead to some exaggeration in his evidence.
The dyslexia did not prevent Tim from reading documents that were put to him in cross-examination, although I am satisfied that Tim's dyslexia provides a reason as to why he has generated very little documentation of his own throughout the history of the Company. I was told that Tim has and has had a particular difficulty processing numbers, and I am satisfied that this meant that he had a very limited involvement with regard to the Company's accounts and accounting records.
Overall, I consider that Joan was more prone to false recollection than Tim, and there were aspects of her evidence that lack a degree of credibility. Particular examples as to false recollection are provided by the following:
i) In paragraph 28 of her witness statement, Joan refers to Tim having moved into an existing flat above the front of the Majestic Wine retail unit upon returning to Oxford in 2005 to work for the Company, the flat having been converted from office accommodation prior to Tim's return. However, there is other evidence that shows that agreement was not reached with Majestic to take their retail premises until 2007 – see the letter dated 20 June 2007 from Peter Shepherd to Clive Smith. There is then evidence of Majestic having applied for planning permission to develop the premises. This is an important point because if what Joan says in paragraph 28 is true, this would serve to undermine Tim's case that on return to Oxford one of his jobs was to provide night-time security on the site bearing in mind that it was Joan's evidence that Majestic was, itself, responsible for security.
ii) In paragraph 56 of her witness statement, Joan said that Tim had, in 2020, following his departure from the Company, been diagnosed with dyslexia. However, an occupational psychologist's report dated 17 January 2020, prepared in respect of Tim's dyslexia, refers to Tim having informed the maker of that report that he attended special classes for dyslexia in his primary school, something that I consider that he is unlikely to have made up or falsely recalled particularly bearing in mind that further detail as to the assistance provided at school is provided (based on information provided by Tim) in a report dated 10 July 2020 prepared by a consultant psychiatrist in respect of Tim's ADHD condition. However, when asked about these matters, Joan said that she did not know when Tim was diagnosed with dyslexia,...
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Mixing Business With Family: Quasi-Partnership In Family Companies
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