Blunt v Jackson & Ors

This is the trial of two preliminary issues as regards an unfair prejudice petition under s.994 of the Companies Act 2006, (Footnote: ¹) by order of Registrar Derrett of 26 October 2012.

The company concerned is I Fit Global Ltd (“the Company”). It was incorporated on 29 April 2010 and started trading on 1 September 2010. Its business was the importation from China of fitness/weight-loss vibration equipment and their distribution and sale within the United Kingdom.

The Company ceased trading in about May 2012. It seems that an equivalent business has thereafter been carried on by a separate company, I Fit Worldwide Ltd, which was incorporated on 17 January 2012 and is run by the 1^st Respondent, Ms Beverly Jackson. The Petitioner, Mr Blunt, has no involvement with I Fit Worldwide Ltd.

Ms Beverley Jackson was involved in setting up the Company. When it was established, she and Mr Blunt were the Company’s two directors. The 2^nd Respondent, Mr Ian Jackson (who is not related to Ms Jackson but is now her personal partner) became an additional director in September 2010. Until late in the week before the trial, the Respondents were represented by solicitors, DAC Beachcroft LLP (“Beachcroft”), who prepared their Points of Defence to the Petition served on 21 August 2012. However, last week, Beachcroft came off the record and the Jacksons (if I may so refer to them) have since acted in person and represented the Company.

A major issue in this case is whether Mr Blunt is or ever was a shareholder in the Company. He contends that he is a 50% shareholder with Ms Jackson and that they established the Company on this basis. Ms Jackson denies that Mr Blunt was ever a shareholder. That is the first of the two preliminary issues.

As well as being a director, Mr Blunt was employed by the Company and paid a salary. He was dismissed from his employment on 17 November 2011 and effectively removed as a director from that date. Mr Blunt brought the claim for unfair and wrongful dismissal, which was determined by the Employment Tribunal in Sheffield on 21 December 2012 with a judgment in Mr Blunt’s favour. The Company was represented in those proceedings (“the employment proceedings”) by Mr Jackson and both Ms Jackson and Mr Jackson there gave evidence.

It seemed to me that there was potential overlap between some of the factual issues raised in the employment proceedings and in these proceedings, albeit that the relief sought in the present proceedings is very different. In that regard, I consider that it is not appropriate in these proceedings to go behind any findings of the Employment Tribunal: see my judgment in Shah v Shah [2010] EWHC 313 (Ch) at [74]-[86]. That is particularly the case when, by their Points of Defence to the Petition, the Respondents expressly rely on the Company’s response to Mr Blunt’s claim in the Employment Tribunal. However, neither side had obtained from the Employment Tribunal a statement of the reasons for its decision. Accordingly, in the course of the trial I requested the written reasons from the Employment Tribunal. It emerged that in fact Mr Blunt had previously requested a statement of reasons but through administrative oversight they had not been produced. The written reasons were finally sent on 16 May, and as agreed at the trial I gave the parties an opportunity to submit in writing any consequential observations. That has delayed the production of this judgment.

The second preliminary issue ordered to be tried is whether, if Mr Blunt is a shareholder, the matters complained of in the Petition are grounds for an order under s.994. That has been interpreted as meaning whether unfair prejudice has been established.

Although there were specific allegations of financial misappropriation to be addressed, it seemed to me that they arose largely as a result of Mr Blunt’s suspicions about what was going on as he felt that his attempts to have proper discussions regarding the financial circumstances of the business were rebuffed. On Mr Blunt’s evidence, his primary complaint of unfair prejudice emerged as being one of exclusion from the management of what was supposed to be in the nature of a joint venture between the two 50% shareholders. Ms Jackson’s response was that it was not appropriate for him to be involved since he was never a 50% shareholder or indeed a shareholder at all, just a director with specific responsibilities on the importation side of the business. Ms Jackson strongly rebutted in cross-examination each of the allegations that Company money was used for personal gain or an improper purpose, but she accepted that Mr Blunt was excluded from any decisions concerning the Company following his dismissal in November 2011, since he was then removed as a director. Further, Ms Jackson accepted that if the court did find that Mr Blunt held 50% of the shares, she did not wish to work with him in the business and that he should be bought out. That was subject to the important caveat that the business ceased to trade on May 2012 and the Jacksons stated in a brief written statement to the court that it is now worthless. However, in that regard, if Mr Blunt was found to be a shareholder, much would depend on the date on which his shares should be valued for the purpose of an order for purchase under s.996(2)(e), a matter on which the court has a broad discretion. The profit made by the Company in its first six month trading to 30 April 2011 was a little over £22,000 with net assets of £17,205. No accounts were ever prepared for the period 1 May 2011-30 April 2012. I also do not know whether any assets were transferred, and if so on what basis, from the Company to I Fit Worldwide Ltd when the Company ceased trading.

On 17 July 2012, Registrar Derrett made an order for standard disclosure, to be provided by 25 September 2012. However, it became apparent in the course of the trial that disclosure was seriously deficient on both sides. Mr Blunt wished to refer to information connected with his tax returns, and had indeed supplied his solicitors a week beforehand with documents comprising his accountant’s personal tax computation, but those had not been disclosed. This emerged in the course of his evidence. The documents were obtained during the day and, at the Respondents’ request, further specific disclosure was ordered of his actual tax returns which were then provided.

The failure of disclosure by the Jacksons, although on the face of the witness statements apparently concerning very material documents, assumed less significance as the hearing progressed.

In her order of 26 October 2012 directing the trial of preliminary issues Registrar Derrett also ordered that witness statements be exchanged by 21 January 2013. The Respondents were not able to exchange on that date and their solicitors were still not in a position to serve witness statements at the beginning of April. With the trial looming, Mr Blunt therefore brought an urgent application heard by Chief Registrar Baister on the Friday before the start of the trial, 5 April 2013. The Chief Registrar made an order that exchange take place by 5 pm that day, failing which the party in default be debarred from presenting or defending the Petition.

In addition to his witness statement of 14 February 2012 served with the Petition, Mr Blunt had made a further witness statement dated 31 January 2013 that was then served. The Respondents for their part served witness statements from Ms Jackson, Mr Jackson and further short witness statements from Ms Jackson’s daughter, Ms Katie Moore, and a Mrs Jane Wattam, who worked for the Company. (There was also a very brief witness statement from Ms Lucy Moore, Ms Jackson’s other daughter, who was not called to give evidence.)

However, the witness statements from Ms Jackson, Mr Jackson and Mrs Wattam, apart from the final paragraph 23 of Ms Jackson’s witness statement, are not directed at the issues on the unfair prejudice petition but go to what were clearly issues in the employment proceedings. The Court was provided with the witness statements served in those proceedings, and it seems that apart from the final paragraph of Ms Jackson’s statement which is material, and a further sentence in Ms Moore’s statement, the Respondents’ witness statements in these proceedings very substantially reproduce the statements made in the employment proceedings. In particular, the witness statements do not seek to explain the various documents on which Mr Blunt relies in support of his contention that he was a shareholder or indeed make any reference to those documents at all.

In the light of this unfortunate history, and having regard to the fact that the Jacksons were represented until very recently and still had solicitors acting at the time when their evidence should have been served, I did not think it right to permit them to give evidence in chief that went beyond their witness statements. To do so would have defeated the purpose of the direction for service of evidence and the Chief Registrar’s “unless” order, and would have caused unfair disadvantage to Mr Blunt. But since Ms Jackson, followed by Mr Jackson, conducted the cross-examination of Mr Blunt, inevitably aspects of what would have been in their evidence emerged in the way they put their questions. That does not, of course, make it evidence. But in so far as it is reflected in Mr Blunt’s answers, it can properly be taken into account. Further, I permitted Ms Jackson to give evidence in chief regarding the question of dividends, which was the subject of the additional documents disclosed by Mr Blunt at the start of, and then during, the trial and which she had not previously seen.

It is common ground that Mr Blunt met Ms Jackson in early 2010 through a mutual contact. He had been living in China and had developed contacts there. She owned and ran a company called Rapid Tanning Ltd, which operated beauty salons with sun beds. Following initial discussions, they went over together to China in March 2010 where, through Mr Blunt, they met manufacturers to explore the possibility of importing equipment to the United Kingdom. Initially, those discussions focused on “nail painting” machines and although Ms Jackson put to Mr Blunt in her cross-examination that the idea of weight loss machines arose only after she had left China (she returned first), Mr Blunt said it arose while they were both in China. It is unnecessary to decide whether Mr Blunt’s recollection is correct. The fact is that on their return from China, they agreed to set up two companies. One company, China Maze Ltd (“CML”) was to import a range of goods from China that would sell in the UK and to help potential purchasers here who source manufacturers goods from Chinese suppliers. The second was the Company, which specifically focused on the weight loss machines. Unlike the Company, CML never started trading.

There is no dispute that CML was established as a 50/50 sharing between Ms Jackson and Mr Blunt. It was intended as a joint venture between them. Mr Blunt’s case was that the same understanding was reached at the same time regarding the Company and that he signed various papers to that effect at the time of incorporation, shortly before he went back out to China again. Ms Jackson’s evidence, in her answers upon cross-examination, was that they had always intended that there would be a distinction between the two companies as the Company, unlike CML, is dealing in products closely linked to her existing beauty salon business of which she had considerable experience. She was therefore going to own the Company outright, by contrast with the position regarding CML. But she agreed that Mr Blunt would nonetheless be a co-director with her of the Company, as he was similarly of CML.

As I have mentioned, Mr Blunt was from the outset employed by the Company. His salary was £834 per month gross. Mr Blunt said he would never have been prepared to work hard for so low a salary if he did not have a significant ownership interest in the business that he was helping to build up. Much of the Respondents’ evidence concerns complaints about the quality of Mr Blunt’s work and personal behaviour, but although those may have been relevant considerations in the context of an employment claim, they are of no relevance to the question of whether he was a shareholder.

A remarkable feature of this case is the almost complete disregard of the statutory and formal requirements for the operation of a limited company. Ms Jackson accepted that she was responsible for dealing with the paperwork and running the office. As already mentioned, this was not the first company for which she has been responsible. But no register of members was kept as required by s.113. Ms Jackson professed to be unaware whether she was even given a register book and none was disclosed. That is particularly surprising since the incorporation of the Company was handled by a Mr Nick Brown of NGS Corporate Services Ltd (“NGS”), who describe themselves on their notepaper as “UK & International Credit Management Consultants”, and the actual formation was dealt with by company formation agents, Key Legal Services (Nominee) Ltd, to whom the original single share was issued. A further 99 shares were then immediately allotted on the day of incorporation. Again, Ms Jackson said that no share certificates were ever issued and none were disclosed: cp. s. 769(1) and art. 24 of the Company’s Articles of association.

Ms Jackson said that all of this was dealt with by Mr Brown. Ms Jackson also said that Mr Brown was aware of the intended shareholder arrangement, ie that she would be the sole shareholder. But although Mr Brown continued to assist the Company at least until December 2011 when he wrote to Mr Blunt’s solicitors on Ms Jackson’s behalf, the Respondents did not call evidence from Mr Brown explaining what happened.

Two annual returns were made for the Company on 7 August 2011 and on 20 December 2011. Both were filed electronically. The first return, which purports to set out the position on 29 April 2011, in the Statement of Capital states that 102 shares had been allotted and were held as to 34 shares each by Ms Jackson, Mr Blunt and Mr Jackson. The second states that the 102 shares allotted were all held by Ms Jackson. In the second return it is stated, curiously, that 34 shares were each transferred by Mr Jackson and Mr Blunt to Ms Jackson on 29 April 2011, the date covered by the previous return although prior to the date on which that first return was actually submitted. Both Ms Jackson and Mr Jackson said that there were never executed any written transfers of shares: cp. art. 26 of the Company’s Articles which, unsurprisingly, require an executed share transfer for any shares to be transferred. And Mr Jackson was clear in his evidence that he does not consider that he was at any time a shareholder.

There was no explanation as to how the first annual return came to be made. Ms Jackson said the second return, made on 20 December 2011, was put in by Mr Brown on her instructions to correct the mistake in the previous return after that had come to light. But she could not explain why it sought to do so on the basis of Mr Blunt having transferred his shareholding of 34 shares to her on 29 April 2011: her case is that Mr Blunt had at no time held any shares in the Company.

In view of the confused and wholly inadequate nature of the formal corporate documentation and records, there are two other documents which I consider of particular relevance to the determination of whether there was an agreement and understanding that Mr Blunt was to become, and indeed then became, a shareholder.

The first is a letter sent to the Company’s bankers, Lloyds TSB, dated 22 June 2010, some two months after incorporation. It is not on headed notepaper but has the name and address of the Company typed at the top. After setting out the sort code and account number relevant to the Company’s account, it reads as follows:

“Please find below details of all shareholders with a shareholding of 25% or more:

Name Percentage

Mr N Blunt 50%

Mrs B Jackson 50%

I confirm that the details given above are true and that each remaining shareholders’ shareholding is less than 25%.

Yours faithfully”

There is then typed the words “Company Secretary” which have been crossed out in manuscript and the word “Director” written in. The letter is signed “B Jackson”.

The way this letter came to light is significant. Following an enquiry by Mr Blunt, the manager of the local branch of Lloyds TSB wrote to him on 16 March 2012 stating:

“When the account was opened we obtained a letter from Beverley Jackson in her capacity as Director that on the 22/06/2010 the shareholding was split between the two of you on a 50% basis.”

That led to enquiry being made of the bank by Mr Blunt’s solicitors, Ironmonger Curtis LLP, to whom the bank then sent by fax a copy of the letter of 22 June 2010 quoted above. Mr Blunt’s Points of Reply in these proceedings, served in November 2012, not only expressly refer to that letter but actually attach a copy. However, the letter is not referred to at all in Ms Jackson’s witness statement. In her evidence at trial, she accepted that it bears her signature but said that it was not her letter and that someone must have fabricated the letter by transposing her signature. She said that she would not have prepared a letter to be signed by the “Company Secretary” only for that to be crossed out and the word “Director” inserted. She could not suggest who might have prepared the letter. However, although she has been aware of the letter since receipt of the Reply, at a time when she was advised by Beachcroft who would doubtless have asked her about it, and despite disputing its authenticity, Ms Jackson said that she never sought to obtain from the bank the original letter or to have it forensically examined. For a letter that is of obvious and direct relevance to a key issue in this case, and was clearly being relied on very strongly by Mr Blunt, that is, frankly, astonishing.

The second document that I regard as very significant is a letter dated 15 December 2011 from Mr Brown of NGS. This arose as follows. On 2 December 2011, shortly after his dismissal, Mr Blunt instructed Ironmonger Curtis, who wrote to Ms Jackson and the Company making various claims on behalf of their client, including an employment claim regarding his dismissal and a complaint that although he held a 50% shareholding in the Company, the Companies House records show him as holding only 33% of the shares. It would appear that it was this letter which prompted Ms Jackson to arrange for the making of the second annual return later that month, to which I have referred. But it seems that in a further, “without prejudice” letter of the same date, Mr Blunt’s solicitors must have stated that he wished to sell his share. I say that because Mr Brown of NGS wrote on behalf of the Company and Ms Jackson to Ironmonger Curtis on 15 December 2011 a letter which states that they are “instructed to respond to your letters dated 2^nd December 2011” [my emphasis]. Mr Brown’s letter continues:

“We note at the outset that your client is seeking to sell his shares and to settle his employment dispute. You have provided no basis for your client’s valuation of his demand and as such it does not appear to have merit.”

Nothing further is said in Mr Brown’s letter in response to Mr Blunt’s apparent attempt to sell his shareholding.

Since Ms Jackson’s case is that Mr Blunt never had any shares in the Company and that Mr Brown was aware of this since he was involved in the formation of the Company at the outset, and since this letter was expressly written on Ms Jackson’s instructions, it was, to put it mildly, an extraordinary response if it were indeed the case that Ms Jackson and Mr Brown believed that Mr Blunt had no shares at all which he could sell. In cross-examination, Ms Jackson accepted that she could offer no explanation why Mr Brown expressed himself as he did.

In my judgment, the only credible explanation in the light of the above two documents is that Ms Jackson had agreed with Mr Blunt that he would be a shareholder in the Company and believed that he was indeed a shareholder in accordance with that agreement. This view is confirmed by the situation regarding payments from the Company to Mr Blunt. It is common ground that at its inception, Mr Blunt put money into the Company. He said he put in some £11,000. Ms Jackson thought, but could not be sure, that the amount was closer to £5,000. Both agreed that he was repaid in full. It is also common ground that Mr Blunt received substantial payments from the Company. Those payments amounted to £11,000 in the year ended 30 April 2011, constituted by a payment of £7,000 on 7 March 2011 and £4,000 on 8 April 2011; and to some £21,500 in the year ended 30 April 2012. Mr Blunt said these were dividends. Ms Jackson said that the Company never paid any dividends and that these payments were loans to Mr Blunt’s director’s loan account. That point is not made in her witness statement or indeed in the Respondents’ Points of Defence although the allegation that Mr Blunt received dividends is pleaded in the Petition. It emerged through Ms Jackson’s cross-examination of Mr Blunt and then her own evidence in the witness box: see para 15 above.

When Mr Blunt said that he had declared the dividends for tax purposes and produced a tax computation to that effect prepared by his accountants, Ms Jackson pointed out that he had not produced his tax returns. Accordingly, I ordered Mr Blunt to produce copies of the tax returns for the two financial years, which were sent through by his accountants in the course of the trial. They further confirmed, in response to a point raised by Ms Jackson, that copies of the electronically filed returns had been signed by Mr Blunt. Those returns show dividends (excluding tax credits) in amounts of £5,500 for the tax year 2010/11 and £24,000 for the year 2011/12. Mr Blunt said that he held no shares other than those in the Company, and I accept that evidence as truthful. It would clearly be remarkable if he declared as dividends, and thus had included in his income for the purpose of tax, payments that were in truth only loans.

Still more significant, in my view, is Ms Jackson’s own evidence in that regard which emerged under cross-examination. Although on her case there was a very significant debt from Mr Blunt outstanding to the Company for repayment of these loans, she did not ask him to repay this sum when he was dismissed. Indeed, she accepted that at no time since his dismissal has the Company made any attempt to obtain repayment. There was not a single letter written to Mr Blunt concerning the alleged loans. This was despite the fact that the Company was in financial difficulties by early 2012. Nor did the Respondents disclose any documents from the Company recording these loans. Moreover, one document which Ms Jackson did produce is a letter to her from the accountants, Mazars, dated 6 March 2013, which refers to information supplied by Ms Jackson setting out the Company’s liabilities and stating that it has “no assets”. That is of course wholly inconsistent with the Company having what for it would be a relatively significant creditor in Mr Blunt owing it over £20,000. Furthermore, although the allegation that Mr Blunt had received a series of dividend payments is pleaded in the Petition, in the Points of Defence drafted by Beachcroft for the Respondents there was no suggestion that payments were made by way of loans.

Ms Jackson made the point that the Company’s accounts for the year ended 30 April 2011 do not record any dividends. However, not only do the same accounts record the issued capital of the Company as 102 shares, which Ms Jackson said was wrong, but given that the accounts were prepared on information from Ms Jackson and her manifest neglect to keep proper documentation of the Company’s affairs, I do not regard that as of weight when considered against the matters I have set out above. I have already mentioned that no accounts were ever prepared for subsequent years. Since the directors never passed any resolutions whatever or kept any record of their decisions, the fact that Art. 30 of the Articles requiring a declaration of dividends was not complied with is also of no real significance in this case. The requirements of the Articles were ignored throughout.

Accordingly, I find that the Company did indeed pay dividends to Mr Blunt, which of course is only explicable on the basis that he is a shareholder. I note in that regard from the Company’s bank statements that on many occasions when a cheque was issued to Mr Blunt, which I find was a dividend, a second cheque was issued in the same amount which Ms Jackson accepted was to her, although she maintained that this was for an equivalent loan.

For all these reasons, I unhesitatingly reject the evidence of Ms Jackson as completely incredible. I accept the evidence of Mr Blunt, who I found to be an honest witness, readily recognising that there was some confusion in the chronology of events as set out in his statement. I find that Mr Blunt and Ms Jackson agreed on the establishment of the Company in April 2010 that it would be, in effect, in the nature of a partnership between them, in which each would hold one half of the shares, and that this was the basis on which Mr Blunt went forward in working for the Company on a very modest salary.

Accordingly, I find that there was an agreement with Mr Blunt that he would become a member of the Company, as required by s.112. He was never so entered in the register but, as I have observed, no register exists.

That leaves the question of how many shares have been issued in the Company and therefore how many share Mr Blunt holds or should hold. It may not in practice matter whether there are 100 shares as provided in the return of allotment dated 29 April 2010, or 102 shares as set out in the annual returns submitted on 7 August 2011 and 20 December 2011 and in the filed accounts for the year ended 30 April 2011. No return of allotment of a further two shares were ever made so as to increase the share capital to 102 shares: see s.555. Ms Jackson said she was not aware of the further allotment and believed that the Company’s share capital remained at 100 shares. Mr Blunt was not aware of any allotment or in any position to disagree on this point. In those circumstances, I consider that the better view is that the share capital was never increased by further allotment and remains at 100 shares.

In the Petition, as expanded in his witness statements, Mr Blunt alleged several acts which he contended constituted use by Ms Jackson and Mr Jackson of Company monies “inappropriately and for personal gain”.

Those allegations stemmed from the suspicions raised in Mr Blunt when he started to look into the Company’s finances in May 2011 while the Jacksons were on holiday. Prior to that, he had been content to delegate all financial management of the Company and the conduct of its affairs to Ms Jackson, and of course he personally was often in China. I shall deal with these allegations relatively briefly as I find that they do not amount to unfair prejudice.

He complains that the Company “gifted” four new machines to Ms Jackson’s daughter, Ms Katie Moore. These were four of the “I Fit Classic” models. However, it is common ground that Ms Moore did some work for the Company, designing its logo and all its promotional material. She said that she liaised with advertisers and trade show promoters. She said that she put in over 400 hours for the Company between leaving her job in October 2010 and starting her own I Fit studio in January 2011. I heard Ms Moore give evidence and found her to be an honest witness. She said that she put in an invoice to the Company for £4,000 for her work and that she was invoiced for the four I Fit machines in the equivalent amount of £4,000. In fact, that invoice was apparently made out to her own company whereas she did the work personally.

Neither invoice was disclosed by the Respondents and Mr Blunt said he had never seen them. Nonetheless, Mr Blunt accepted that Ms Moore did work but his case was that in return he did the shop fitting of her own studio for free. His evidence was that the I Fit Classic machine has a retail price of £3,000 and cost the Company £400 (exclusive, I think, of shipment costs). It may be that on this basis the pricing of the four machines was generous to Ms Moore, but that seems to me a managerial decision and not something that was for Ms Jackson’s personal profit. It does not, in my judgment, constitute unfair prejudice to Mr Blunt. It appeared that his real complaint was that he had not been consulted in advance of the decision to provide the machines to Ms Moore on the basis that the price was evidently determined at a level to be set off against her fee so that no money came to the Company.

The next matter complained of was an invoice for the Jacksons’ holiday of £4,758, which Mr Blunt noted went through the Company’s bank account on 12 October 2011. He discovered that when he looked at the bank statements in mid-November with the help of the Company’s new bookkeeper. Although that unsurprisingly raised concerns in Mr Blunt, it was explained by Ms Jackson, again in cross-examination and not in her witness statement, that she paid this amount out of the Company’s account when her personal credit card payment did not go through, and that she repaid the Company one week later. That is not what was pleaded in the Points of Defence, which in response to this specific allegation expressly deny that the Jacksons’ personal invoices were put through the Company’s books. However, I accept the explanation which, when it was put to Mr Blunt in cross-examination by Ms Jackson, he did not dispute but only pointed out that he had not been given this explanation before. Thus, even though the drawing on Company funds to assist the Jacksons was unauthorised, it does not, in my view, constitute unfair prejudice to Mr Blunt.

Next, Mr Blunt complained about the expenditure of over £1,000 on tools paid to Screwfix, which he said was largely devoted to tools for Mr Jackson’s own business (he operates a plumbing business) and was unnecessary. However, the I Fit machines when received from China required assembly, and it seems clear that there were frequent mechanical problems such that spares parts had to be fitted. Mr Jackson carried out work of that nature for the Company. It is not for the court to determine whether or not these tools were a prudent purchase. I am satisfied that they were bought for the purpose of the Company’s business even if Mr Jackson may sometimes have used them for other purposes. Again, this is a managerial decision which cannot be classified as a fundamental misuse of Company monies and so does not amount to unfair prejudice.

More significant is the question of the rent of premises. The Company has its office in the same building as one of the beauty salons of Ms Jackson’s other business, Rapid Tanning Ltd. The building is owned (whether freehold or leasehold does not matter) by Ms Jackson personally. Initially, no rent was charged but after about the first year, rent of £750 per month was paid by the Company to Ms Jackson. Mr Blunt said he disagreed with that arrangement and considered that the Company should have had its office at the warehouse used for storage of the imported machines, which was on a trading estate. He complains that he was not consulted prior to the rental being agreed and found out only afterwards.

It is clear that Ms Jackson should not have been involved as a director in the decision to rent from herself: see the conflict of interest provisions in art.14 of the Articles. But although this is yet another point that is not covered in her witness statement, I am prepared to accept that, as she put it in her cross-examination of Mr Blunt, this was a relatively low rent for the space involved. When that was put to Mr Blunt, he did not really dispute that fact but contended that it would have been much better for the Company and saved money to have located the office either on the mezzanine floor of the warehouse or in an adjacent unit where space was available for around £500 a month.

Although this decision was reached in a manner that I regard as unfair and improper, in the end it amounted to a managerial decision regarding the conduct of the business and I do not find that it was prejudicial to Mr Blunt’s interests within the meaning of s.994.

However, as explained above, there is an entirely different basis for consideration as regards unfair prejudice here: the exclusion of Mr Blunt from what, on his case, was intended as a joint venture. He said that when he went with Ms Jackson to meet the bank manager at the outset in order to open the Company’s account on which he and Ms Jackson were both signatories, she described him as her partner in the business. As I have already indicated, I accept that the Company was established by the two of them on that understanding. His evidence is of course consistent with what I have found to be the correct shareholding position.

Exclusion of a shareholder from a company of that nature, often referred to as a “quasi-partnership”, is a well established ground for finding unfair prejudice: see O’Neill v Phillips [1999] 1 WLR 1092.

In my judgment, there can be no doubt that Mr Blunt was excluded on the facts of this case. The attempt to make Mr Jackson a shareholder and dilute Mr Blunt’s shareholding as evidenced by the annual return made on 7 August 2011, a document which Ms Jackson could not explain, is one aspect of this. The subsequent return made on 20 December 2011 excluding Mr Blunt altogether and stating his shares were transferred on 29 April 2011, which return was prepared by Mr Brown at Ms Jackson’s request, is a further example for which she is clearly responsible. But it is Mr Blunt’s removal as a director in November 2011 without his agreement that is the clearest example of exclusion. Ms Jackson readily agreed that thereafter she did not regard Mr Blunt as having any rights regarding the management of the Company as, in her view, he was no longer a director and was not (and never had been) a shareholder. Whatever the position beforehand, as to which Mr Blunt’s evidence about being denied information once he started raising queries in May 2011 was challenged by Ms Jackson, there can be no doubt that from November 2011 Mr Blunt was excluded. Given the basis on which the Company was established, that exclusion, in my judgment, was clearly unfair and prejudicial to Mr Blunt’s interests as a shareholder.

For the reasons set out above, I find that Mr Blunt was a shareholder of the Company and that 50 of the 100 shares, which I find is the proper share capital of the Company, were to be held by him. He was never so entered in the register of the Company and indeed, as I have observed, no register exists.

In Re Sussex Brick Company [1904] 1 Ch 598 the Court of Appeal held that the court’s power to rectify the register under the equivalent of what is now s.125 entitles the court in an appropriate case to order that the registration should be retrospective. I consider that here that is appropriate and will not cause injustice to any third party. In his Petition, Mr Blunt sought a declaration as to his shareholding. Insofar as it is formally necessary to give him permission to ask in addition for an order for rectification of the register, I shall grant that permission. However, since no register exists, I shall hear the parties as to what further order, if any, might be appropriate in that regard.

Furthermore, I conclude that Mr Blunt has suffered unfair prejudice within the terms of s.994 at the latest in November 2011. Since this is the trial only of preliminary issues, I shall hear the parties as to what further directions are now appropriate in the light of these findings.