Universal Project Management Services Ltd v Fort Gilkicker Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Briggs |
| Judgment Date | 26 February 2013 |
| Neutral Citation | [2013] EWHC 348 (Ch) |
| Docket Number | Case No: 8414 of 2012 |
| Court | Chancery Division |
| Date | 26 February 2013 |
[2013] EWHC 348 (Ch)
Mr Justice Briggs
Case No: 8414 of 2012
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr James Bailey (instructed by Olephant Solicitors) for the Applicant
Miss Marion Smith (instructed by DWF LLP) for the Second and Third Respondents
Hearing dates: 13 February 2013
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.
Introduction
This is an application for permission to continue a derivative action. It raises for decision two related legal questions which are not the subject of any reported English authority. It does so because the action is what is called a double derivative action. The applicant is not a shareholder in the company in which the cause of action is alleged to be vested. Rather it is a member of a limited liability partnership ("LLP") which owns all the shares in that company.
Prior to the coming into force of the Companies Act 2006, derivative actions relating to companies were creatures of the common law. It is common ground that the ordinary derivative action (by a member of the allegedly wronged company) was wholly replaced by the statutory derivative claim provided in Chapter 1 of Part 11 of the 2006 Act, which confers locus standi only upon a member of the relevant company. The legal questions for decision on this application are:
(1) Whether a multiple derivative action was known to English common law before the coming into force of the 2006 Act; and,
(2) If so, whether the multiple derivative action (of which the double derivative action is a sub-species) has survived the coming into force of the 2006 Act.
If either of those questions is answered in the negative, then it is common ground that this application should be dismissed without further investigation of its merits. If both are answered in the affirmative, then it is common ground that the Particulars of Claim disclose a sufficient prima facie case for the giving of permission, but the defendants other than the company itself submit that the circumstances are such that the court should either refuse permission as a matter of discretion, or at least stay the proceedings for negotiation.
The Facts
The defendants' sensible acknowledgment that the Particulars of Claim disclose a prima facie case means that I can describe the facts relatively briefly. The claimant Universal Project Management Services Limited ("UPMS") and the second defendant Mr Ian Pearce are equal participants in a property development joint venture which, at least since January 2008, has been carried on through Askett Hawk Properties LLP ("the LLP") in which UPMS and Mr Pearce are the only members, with equal shares.
The joint venture is currently engaged in three separate property developments, in the Isle of Man, in Guernsey and in Hampshire, each of which was to be carried on through the medium of a separate single purpose vehicle ("SPV"). The Hampshire development relates to a former Victorian coastal battery called Fort Gilkicker. The SPV used for the re-development of Fort Gilkicker into a series of residential units was Askett Hawk Developments (Gilkicker) Limited. It was incorporated on 16 December 2010 and changed its name to Fort Gilkicker Limited ("FGL") in March 2011. FGL is the company in which it is alleged that there is vested the cause of action which UPMS seeks permission to litigate on its behalf. It is the first defendant to the claim.
Subject to any more detailed terms of the written LLP agreement regulating the affairs of the LLP, (which was not in evidence), the joint venture for which the LLP was the vehicle was carried on pursuant to an oral agreement between UPMS (represented by its principal mover and shaker Dr Frischmann) and Mr Pearce, under which each was to have equal shares in the joint venture, to contribute equally to its costs, to be entitled to half of any profits, to have equal representation on the board of any company pursuant to which any part of the joint venture was conducted, and an equal share in any relevant decision making. Dr Frischmann (who is a successful civil engineer) and Mr Pearce (who is a successful chartered building surveyor) became, and remain, the only two directors of FGL.
The initial steps in the acquisition of Fort Gilkicker, and the obtaining of planning permission for its development, were carried out through another joint venture company Askett Hawk Developments Limited ("Askett Hawk") in which UPMS and Mr Pearce were also equal shareholders and directors. The steps were taken with a view to vesting ownership of Fort Gilkicker, and the benefit of any planning permission, in FGL, while Askett Hawk remained responsible for the marketing of the residential units, once built.
Askett Hawk obtained planning permission for the development of Fort Gilkicker, following a public inquiry, in August 2010. On 7 July 2011 FGL entered into an option to acquire Fort Gilkicker from Hampshire County Council ("the Option"), the main terms of which were as follows:
(a) the premium for the option was £15,000,
(b) its term was for one year,
(c) its exercise was to create a contract for the purchase of Fort Gilkicker for £300,000 less the premium of £15,000, the balance of £285,000 being payable ten days after completion of the first transfer on sale of a freehold or leasehold residential unit within the fort.
(d) Between exercise and completion, the Council's entitlement to the deferred balance of the purchase price was to be secured by a legal charge granted by FGL over Fort Gilkicker.
The premium for the grant of the option was paid by Askett Hawk on behalf of FGL, and funded equally by UPMS and Mr Pearce.
The day to day conduct of the development of Fort Gilkicker lay with Mr Pearce, but subject to the requirement for unanimity as between him and Dr Frischmann on any major decision, pursuant to the oral terms of the joint venture.
In May and June 2012 there arose a serious disagreement between Dr Frischmann and Mr Pearce in relation to the development of Fort Gilkicker, arising from Dr Frischmann's loss of confidence in a Mr Franklin, the architect for the project. Dr Frischmann's preference was to continue the development with a different architect, whereas Mr Pearce's preference was to continue with Mr Franklin, if necessary by Mr Pearce taking over UPMS's share in that development (but not in the rest of the joint venture), and repaying its investment in the Fort Gilkicker project in full.
That difference had not been resolved when Dr Frischmann left for his annual holiday in Majorca, from 2 to 30 July. Meanwhile the Option was due to expire five days later, and had not by then been exercised.
UPMS's case is that, while Dr Frischmann was away and behind his back, Mr Pearce allowed the Option to expire, incorporated a new company, Fort Gilkicker Properties Limited ("FGP") and, pretending that it was another joint venture entity, secured its purchase of Fort Gilkicker from the County Council on precisely the terms which had previously been available to FGL pursuant to the Option. It is common ground that FGP is a company owned and controlled entirely by Mr Pearce, and that it has indeed acquired Fort Gilkicker on those terms. It is the third defendant to the claim.
The development of Fort Gilkicker had been estimated to be capable of generating a profit of several million pounds for the joint venture. UPMS therefore claims that in taking the steps just described, while remaining director of FGL, Mr Pearce misappropriated a valuable business opportunity of FGL for his personal benefit, in breach of his fiduciary duty to FGL. That is, of course, a claim solely vested in FGL which may be assumed to be unlikely to pursue it against Mr Pearce for as long as the jointly owned LLP remains FGL's sole shareholder, and Dr Frischmann and Mr Pearce remain its sole directors.
Mr Pearce and FGP have yet to be called upon to serve a defence to that claim. Nonetheless, in a witness statement served by way of opposition to the application for permission to continue the claim, Mr Pearce has set out an attempted justification of his conduct. I can summarise it by saying that he claims that the purchase of the Fort by FGP was a step taken to ensure that the potential investment of both time and money in the project was preserved, notwithstanding the expiry of the Option, against a backdrop of UPMS through Dr Frischmann ceasing to co-operate in the project, and expressing a desire to extricate UPMS' investment from the project by its sale to a third party.
It appears to be common ground that, to their credit, Dr Frischmann and Mr Pearce have managed to insulate their disagreement about the Fort Gilkicker development in such a way that they continue co-operatively to pursue the other two development projects of the joint venture in Guernsey and the Isle of Man. This is not, therefore, a case in which either of them wishes to have the joint venture terminated or wound up. Mr Pearce said, both in his witness statement and through Miss Marion Smith of counsel, that he hopes and expects shortly to be able to resolve his differences with Dr Frischmann in relation to the Fort Gilkicker project, without the necessity of further court proceedings of any kind.
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