McConomy & Anor v ASE Plc & Anor

His Honour Judge Stephen Davies:

Introduction

This case involves a claim and a counterclaim arising out of a joint venture for the provision of capital tax allowance services. In short, the first claimant, Mr Gareth McConomy, a specialist in providing such services, entered into an agreement with the first defendant (referred to as “ASE”), an accountancy and consultancy practice specialising in serving the automotive industry, to provide capital allowance services to – amongst others - clients of ASE, through the medium of the second claimant (then known as White Label Tax Limited, and thus referred to as “WLT”).

The terms of the joint venture were to be found in two contracts. The first contract was the shareholders agreement relating to WLT and entered into between Mr McConomy (who was to be the founder director and a 51% shareholder) and ASE (who was to be a 49% shareholder). The second defendant, Mr Michael Jones (I shall refer to him as Mike Jones to distinguish him from his father and his brother, who also feature in the case), a director and the chairman of ASE, was to be the other director of WLT. The second contract was a service level agreement (referred to as “the SLA”) entered into between WLT and ASE, which regulated as between them the terms under which the capital allowance services were to be provided to ASE’s clients.

In summary, the claimants claim that ASE breached the terms of the SLA by entering into arrangements with clients in 5 specified cases which were contrary to the terms of the SLA in that WLT’s advance consent to non-standard terms was not sought or obtained, and which were for its own interests, and by failing to pay WLT what was due under the SLA. The claimants claim that this entitled WLT to terminate the SLA, and also placed ASE in breach of the shareholders agreement, with the result that Mr McConomy was entitled to invoke the compulsory buy out provisions of the shareholders agreement.

Thus WLT seeks payment of sums said to be due from ASE under the SLA and Mr McConomy seeks a declaration that he is entitled to invoke the compulsory buy out provisions of the shareholders agreement.

WLT also seeks damages or equitable compensation against Mike Jones for alleged breach of his statutory duty to WLT as its director as regards the entering into of arrangements with ASE’s clients in relation to the 5 specified cases of which it complains as against ASE.

The defendants’ case, in summary, is that: (a) the arrangements made with their clients about which WLT complains were made in accordance with the terms of the SLA as varied by mutual agreement, and for perfectly good commercial reasons with which Mr McConomy agreed at the time, or would have agreed had he been asked, so that the complaints are unjustified; (b) WLT was paid in accordance with the terms of the SLA also as varied by mutual agreement, and Mr McConomy never complained about late payment; (c) WLT was prepared to and did write off the difference between the amounts invoiced and the amounts due under the SLA as varied; (d) in the circumstances, Mr McConomy and WLT waived what might otherwise have been breaches of contract if, for any reason, the variations were ineffective; (e) further and in the circumstances insofar as there were breaches they were neither repudiatory as regards the SLA nor material as regards the shareholders agreement or, if they were repudiatory as regards the SLA, it was nonetheless affirmed by WLT; (f) the contractual conditions precedent to termination of the SLA or the shareholders agreement were not met; (g) insofar as there is a claim for damages in relation to the arrangements with clients complained of, it is a nominal claim because WLT would have agreed the non-standard terms if asked anyway; (h) there is no basis for holding Mike Jones liable as director of WLT since he was not directly involved in the negotiation or agreement of the arrangements complained of and since the non-standard terms were agreed in good faith and for what was genuinely believed were the best interests of both ASE and WLT.

I have heard evidence over 7 days and have had the benefit of detailed and helpful written opening and closing submissions, supplemented by oral submissions on day 8, from Mr Mark Harper QC and Mr Aidan Reay for the claimants and from Mr Giles Maynard-Connor for the defendants, and I am extremely grateful to them all, as I am to the respective solicitors for the efficient preparation of their respective clients’ cases and the trial bundles.

I circulated my written judgment in draft on 4 January 2017. Mr Maynard-Connor provided a list of suggested errata, agreed by Mr Harper and Mr Reay, for which I am grateful. On 13 January 2017 Mr Harper and Mr Reay also provided a list of points on the draft judgment where they submitted that it was appropriate, in accordance with the practice endorsed by the Court of Appeal, that I should consider giving further reasons and/or further addressing points where it was said that I had fallen into error. It was agreed between counsel that Mr Maynard-Connor should be given the opportunity to reply before I decided whether and if so what amendments to make. My revised draft judgment was therefore produced with the benefit of both the points made by Mr Harper and Mr Reay and Mr Maynard-Connor’s responses made on 20 January 2017, although I have only added to or amended the judgment where I consider it necessary or appropriate to do so. As will be apparent, I have not changed my views or the substance of my judgment in consequence of the matters raised by Mr Harper and Mr Reay.

My conclusions appear at section 17 below, and my reasons are set out below.

The Parties and the Agreements

Mr McConomy, a surveyor by qualification, has developed a niche in the provision of capital allowance services, which in the more complex cases benefit from specialist surveying and accountancy expertise. In short, businesses are of course entitled to set off qualifying capital expenditure against tax due for the year in which the expenditure has been incurred. In the more straightforward cases the accountants to and auditors of the company concerned will ascertain the relevant capital expenditure incurred in that year and include it in the relevant accounts and returns. However the client may benefit from more specialist surveying or accountancy expertise where more complex questions may arise as to what is and what is not qualifying expenditure and the valuation and allocation of that qualifying expenditure. Furthermore, it may happen that a company has not claimed some or all of the qualifying capital expenditure which it might have claimed in previous years. In such cases it is possible to make historic claims, and these tend to be undertaken by specialist capital allowance consultancies, often willing to act on a contingency basis.

Accountancy practices view these historic capital allowance services as valuable, not just because they are lucrative in themselves but because they may be a good “door-opener” to other more regular repeat work such as audit and general tax work.

ASE is a specialist accountancy and consulting practice, serving almost exclusively the automotive industry. It was formed in 1975 by Mr Trevor Jones and has grown into a very substantial business, with a group turnover of around £16M and around 240 employees in 14 offices worldwide. Its main office is in Manchester. It is still a family owned business and both Trevor Jones’ two sons Mike Jones and Robert Jones are directors (Mike Jones being chairman and Robert Jones being chief executive officer) and work on a full time basis in the business.

Mr McConomy was employed by ASE as a tax manager in September 2010 to provide capital allowance services but fairly soon decided that he would prefer to work for himself. Following discussions with Robert Jones and Mike Jones it was agreed that it would suit both parties to set up a joint venture capital allowance services consultancy company. The plan was that Mr McConomy would continue to provide capital allowance services to ASE’s clients, who would continue to view him as part of ASE, but the fees would be divided 45% / 55% as between ASE and the planned joint venture company, which was to be jointly owned and controlled by Mr McConomy and ASE on a 51% / 49% ownership split. The new company would not be limited to providing capital allowance services to ASE’s clients, so that Mr McConomy could develop new business with third parties once the company was established, but it was anticipated that ASE’s clients would provide what was in effect a guaranteed base of work for the business.

By June 2011, when Mr McConomy left ASE’s employment having worked his notice, these terms had been agreed in principle and it was decided that the way forward was for Mr McConomy and the then head of tax at ASE, Mr Matt Hodgson, to produce an agreed service level agreement to set out the detailed arrangements for how the joint venture would work at the operational level, and for Mr McConomy and ASE to instruct lawyers to produce what would become the shareholders agreement to set out the terms of the joint venture.

This was done, and the agreements were produced, agreed and concluded on 2 September 2011. Insofar as relevant, the first draft of the SLA was produced by Mr McConomy and was fairly quickly discussed by and agreed between him and Mr Hodgson with some minor amendments, and with no legal input, whereas and as anticipated the shareholders agreement was produced by and negotiated between the respective lawyers.

I shall refer to the SLA first, and then to the shareholders agreement. I should however emphasise that it is clear from the chronology and from their face that they were intended to be entered into at the same time and to be read together. That is apparent from the definition of the SLA in the shareholders agreement as being “the service level agreement to be entered into between [WLT] and ASE on or around the date hereof”, and the specific obligation in §2.2(d) of the shareholders agreement for WLT and ASE to enter into the SLA on completion of the shareholders agreement.

The SLA

In the SLA WLT is referred to as the Service Provider and ASE as the Customer.

The purpose of the SLA was [§1] said to be the provision of capital allowance services to support ASE’s tax department and to “outline the parameters of capital allowance services covered as they are mutually understood by WLT and ASE as the ‘primary stakeholders’”. Whilst I am satisfied that the intention of the parties at the time was that WLT would be instructed by ASE predominantly in relation to historic capital allowance services, the SLA was nonetheless sufficiently widely drafted to cover current year capital allowance services if WLT was required by ASE to provide such services.

It is unnecessary to do more than to note the detailed terms of the SLA concerning such matters as the provisions for review of the SLA [§4], the detailed service parameters [§5], service management, including timetables for the provision of reports [§6], and the detailed breakdown of the respective roles [§12].

Of key relevance to this case are §5.4 (“service assumptions”), §7 (“agreed terms”) and §13 (“payment of fees”), which provided as relevant as follows:

It is clear from §7 that, as between WLT and ASE, the latter was not entitled to contract with its clients other than on the specified standard terms without first obtaining WLT’s written consent. It is obvious that WLT had a commercial interest in the terms agreed between ASE and its clients, because by §7.3 and §13 WLT’s fee was 55% of the overall fee agreed with and payable by the client as set out in the signed letter of engagement. WLT was entitled to invoice ASE at the same time as ASE was entitled to invoice the client under the letter of engagement, and WLT was entitled to payment 60 days from the date of invoice. It follows that under the SLA as between WLT and ASE it was the latter which took the commercial risk of non-payment, short payment or late payment by the client.

Consistent with general contractual principles, if ASE chose to enter into a letter of engagement with one of its clients which departed from the standard terms without the prior consent of WLT, that letter of engagement would be binding as between ASE and its client. The same would be true if ASE chose unilaterally to vary the terms of a letter of engagement already entered into, for example to agree with the client a reduced fee entitlement, whether prospectively or retrospectively, without the prior consent of WLT. That is because the client could not be bound by restrictions in an agreement made between ASE and WLT to which it was not a party and of which it was unaware.

It is clear in my view that as a matter of construction of the SLA the fee payable to WLT under the SLA would be 55% of the total fee payable by the client to ASE under the terms of the letter of engagement as entered into between ASE and its client, even if ASE had agreed non-standard terms without first obtaining WLT’s consent. That would also be the case in relation to a subsequent variation to an existing letter of engagement. However, as Mr Harper QC submitted, consistently with the pleaded case, that would nonetheless amount to a breach of §7 which would sound in damages, so that WLT would be entitled to recover damages for the shortfall, subject to the application of conventional principles in relation to the recovery of damages for breach of contract.

I should say immediately that it is common ground that in the majority of cases where non-standard terms were approved by Mr McConomy he approved the terms in the course of oral discussions between himself and the ASE partner or fee-earner involved and rarely if ever confirmed his approval in writing. The claimants, sensibly, do not advance any claim in relation to such cases, because it is of course obvious that the failure to obtain written as opposed to oral consent could not be said to make any difference.

However it is also clear that by 2014 if not before there was a view held at least by some in ASE that not only was ASE entitled to agree with its client non-standard terms or to vary previously agreed terms without the prior consent of WLT, but also that WLT had no right on any basis to recover in excess of 55% of the fee to which ASE was entitled under those non-standard terms or varied terms. In short, the view was that WLT would be stuck with whatever terms ASE might choose to agree with its client, and whatever the reason for the departure from the standard terms. It is also clear that by 2014 if not before there was a view held by some in ASE, including the finance department, that WLT was only entitled to be paid as and when ASE had been paid by its client, and even then only on an ad hoc basis to suit ASE’s cash-flow requirements. In the light of the complaint made on behalf of Mr McConomy about this conclusion I should clarify that I am referring in general terms to my assessment of the understanding and approach of the tax department after Mr Hodgson had left, and of the understanding and approach of Mike Jones and the finance department in autumn 2014, in circumstances where all appear to have been unaware of the detailed terms of the SLA.

As I have already said, one of the issues at trial is whether or not the SLA was varied to this effect, or whether or not WLT should be treated as having waived its right to enforce its strict legal rights under the SLA in these regards. Whilst the determination of those issues must await my findings of fact, it is pertinent to note at this stage that §14 of the SLA provided that both individual engagements and the relationship between the parties were governed by WLT’s general terms of business. These included a provision (within a clause entitled “the services contract”) that any modifications or variations must be in writing and signed by both parties. They also included a provision entitling ASE – but not WLT – to terminate the services contract by written notice at any time.

The shareholders agreement

The parties to the shareholders agreement were WLT, Mr McConomy and ASE, the latter two of which were as I have already said on completion to become 51% and 49% shareholders respectively in WLT [§2.2(a)(iii))]. Mr McConomy and Mike Jones were to be directors [§4.2(b)], with an aspiration for there to be at least quarterly meetings [§4.10(a))], at which Mr McConomy as chairman was to have the casting vote [§4.10(f)]. Mr McConomy was also entitled to receive a “founders salary” of £50,000 pa [§4.9]. Under the distribution policy [§7] 75% of the distributable profits were to be paid as dividend each year. The shareholders agreement was to continue until either terminated by agreement in writing, by all of the shares becoming owned by the same shareholder, upon WLT being wound up, or under the other provisions of the shareholders agreement [§15.1].

The key obligations of the shareholders were to be found in §3.1 including, as relevant to this case, that they should: “(a) promote the best interests of WLT; (b) …; and (c) ensure that the business (defined as the business of the provision of capital allowances tax advice) was conducted in accordance with … sound and good business practice / standard industry practice (Footnote: ¹)”.

By §20.2, entitled good faith, it was provided that:

“(a)

All transactions entered into between the shareholders [Mr McConomy and ASE] and WLT shall be conducted in good faith and on the basis set out or referred to in this agreement …

(b)

Each party shall at all times act in good faith towards the other and shall use all reasonable endeavours to ensure that this agreement is observed.

(c)

Each party shall do all things necessary and desirable to give effect to the spirit and intention of this agreement.”

Under §11 if there was “an event of default” falling within the definition of such the innocent party had the option to give a default notice under which he could require the defaulting party to sell its shares in WTL to the other at 50% of their fair value (as determined in accordance with the procedure in §10) and, in the meantime, the defaulting party would be effectively deprived from participation in the management of WLT. As material to this case, events of default included: (a) the commission of a material breach of the shareholders agreement which was either incapable of remedy or which was not remedied within a specified time of a notice to remedy being received; … (h) the SLA being terminated in accordance with its terms by reason of breach of its terms by ASE.

Under §5.1 the shareholders were required to procure that no action was taken or resolution passed by WLT in relation to what were defined as “shareholder reserved matters” without the prior written consent of shareholders holding at least 75% of the shares. This of course meant that neither Mr McConomy nor ASE could insist on any such action being taken without the consent of the other. Shareholder reserved matters were defined in Schedule 2 and included: “… (m) the cessation of any business operation of WLT; … (q) any material change in the nature of WLT’s business or the way in which it was carried on”. There was however no express reference to the termination of the SLA in accordance with its terms by reason of breach of its terms by ASE as being a shareholder reserved matter.

Finally, by §20.6(a) and §20.7 it was provided that any waiver or variation respectively of the shareholders agreement should only be effective if in writing. In the latter but not the former case that was extended to any documents referred to in it and, hence, to the SLA.

The witnesses

This is a case where all of the witnesses are or were involved with ASE at some time and, whilst at ASE, all worked together to promote ASE’s business. The majority are professionally qualified. All are intelligent, motivated and hard-working people. I am satisfied that all are honest witnesses. All gave what I regard as mainly reliable evidence. Some were more affected by partisan views than others and some were more reliable than others, but these are differences of degree rather than order of magnitude. The majority of events are recorded or referred to in contemporaneous documents, particularly in emails. The resolution of this case does not turn on bitterly contested issues of fact where there is little or nothing to go on in terms of contemporaneous documents. Accordingly, whilst there are some factual disputes which I need to resolve, I do so by reference to my assessment of the reliability of the witness evidence in relation to those individual issues, coupled with my assessment of the relevant contemporaneous documents and of what I consider to be the inherent probabilities, rather than by accepting or rejecting the account of one witness or set of witnesses wholesale.

Nonetheless and for completeness, given that the parties urged me in some cases to reach adverse conclusions in relation to the honesty or reliability of some of the witnesses, I record below the witnesses in the order in which I heard them and my assessment of them as witnesses.

Mr McConomy

Overall I was favourably impressed by Mr McConomy as a witness. He was cross-examined fully, firmly but fairly for a considerable period of time. Overall he came across as an honest, open and reasonable man and a good and reliable historian. There were many occasions in his cross-examination where he volunteered concessions and where he accepted points put to him, even though clearly unhelpful to his case. He did nonetheless have a tendency, which was apparent both in his witness statement and in cross-examination, to argue his case rather than limiting himself to answering the question. He clearly feels very strongly about the case. Nonetheless, given that tendency and also given the pressure any litigant in his position would face, I considered that overall he was far less partisan in his evidence than most witnesses in his position would be. I do not consider that I can accept the totality of his evidence on every disputed matter at face value, and in some respects I consider that he was mistaken. However I do feel able to place considerable reliance on his oral evidence where there is a conflict.

Amanda Sayle

Ms Sayle was employed by ASE as a senior tax manager from August 2012 to April 2016. She gave evidence for the claimants under a witness summary. She was clearly an honest, non-partisan and reliable witness.

Alison Ashley

Mrs Ashley was an audit partner with ASE from April 2012 to April 2016. She also gave evidence for the claimants under a witness summary. I accept that she was an honest, non-partisan and reliable witness, although I detected some underlying hostility to Mr McConomy, not personally but because in 2014 she had come to believe that he was too close to certain former partners or employees of ASE who had left and were competing with ASE.

Richard Howles

Mr Howles gave evidence for the claimants. He was employed by ASE as a business development executive and then manager from September 2011 to January 2015. He had produced a lengthy witness statement for the claimants. He had clearly been willing to devote a great deal of time and effort to the exercise and had co-operated closely with the claimants’ solicitors in its preparation. He also had some reason to be hostile towards ASE, both because it was his evidence that the reason he had left ASE in January 2015 was because of his fear that he would be blamed for having disclosed information to Mr McConomy in December 2014, and also because of his grievance as to how he had been treated by ASE and its solicitors post departure. However both he and Mr McConomy confirmed, and I accept, that there is no continuing business or personal relationship between the two men, and he did not come across to me in cross-examination as being determined to skew his evidence in favour of Mr McConomy and against ASE. I therefore reject the criticism made of him by Mr Maynard-Connor that he was partisan in his evidence and had been untruthful to support the claimants’ case. I accept him as an honest and largely non-partisan witness.

I also consider that he was largely reliable as a witness. I do however also accept, as indeed did he in most cases where it was put to him that his evidence was inconsistent with contemporaneous documents, that in some respects his evidence in his witness statement was mistaken and also that he did not now have a very clear recollection of the details of many matters where not contemporaneously recorded. It follows that I cannot accept his evidence as completely reliable where there is an issue. I reject however the suggestion that he was a confused or exaggerating witness; for example I do not accept the criticism that he had exaggerated the extent of his dealings with Mike Jones and Robert Jones. It did not surprise me, having listened to him, that he would want to tell them about how well he was doing in obtaining new business for ASE nor that they would be interested to hear about it, and his evidence in that regard was consistent with certain emails to which I was referred.

Matthew Hodgson

Mr Hodgson was a tax partner with ASE from early 2011 to August 2013. He gave evidence for the defendants under a witness summary and in the form of a draft witness statement produced by ASE’s solicitors after a meeting to discuss his knowledge of events. Whilst there was some criticism both from him and from Mr Harper to the effect that the draft witness statement was skewed and partisan, I should make it clear that I do not accept that there are any grounds for criticism of ASE’s solicitors as regards the preparation of that statement. He came across to me as honest and largely reliable. It was clear that his oral evidence in answer to questions from Mr Harper was generally supportive of the claimants’ case, and that overall he was inclined to side with Mr McConomy, but that did not in my view of him detract in any significant way from his reliability as a witness.

Timothy Lwin

Mr Lwin gave evidence for the defendants. He was a tax partner with ASE from January 2014, having replaced Mr Hodgson, until sometime in late 2015 or early 2016 when he left to join another practice. He was also subject to some criticism in cross-examination on the basis that his witness statement, which was drafted by ASE’s solicitors, was skewed and partisan; I reject any criticism either of him or of ASE’s solicitors in that regard. In oral evidence he came across as an honest, largely non-partisan and largely reliable witness. My only qualification is that he seemed to me to be a little defensive of his dealings with Mr McConomy, perhaps because he had come to appreciate during the course of this case that through unfamiliarity with the terms of the SLA he had not operated the relationship with the claimants as was required under the express terns of that agreement.

Ashley Heap

Ms Heap has been employed by ASE as a company accountant since September 2010, working in the finance department under the finance director Mike Sanchez. She had dealings with Mr McConomy in relation to the invoices rendered by WLT, in particular certain dealings in October 2014, which are of relevance in this case. However her part in these dealings was, as would be expected, based on what she was told to do and what she understood the relationship between WLT and ASE to be, rather than because she was entitled or expected to make independent decisions. She was plainly honest and reliable.

Peter Rossiter

Mr Rossiter has been employed by ASE since September 2012 in the corporate tax department, working under the supervision of Ms Sayle and Ms Malone. In the same way as Ms Heap he would undertake certain functions, including liaising with Mr McConomy in relation to the invoices rendered by WLT, but based on what he was told and understood rather than making independent decisions. Like her he was also plainly honest and reliable.

Mike Jones

I accept that Mike Jones was an honest witness. He did come across both in his witness statement and in his oral evidence as tending to be partisan, not surprisingly perhaps finding it difficult to divorce his position as a witness from his position with ASE and his personal position as a defendant in these proceedings. Because of that he was not wholly reliable, tending to give answers with a view to supporting his case rather than limiting himself to what he could genuinely recall or speak about. In my view he did not at the time give the relationship with the claimants or his position as director of WLT the attention which he perhaps ought to have done, almost certainly because of the other demands on his time, having transferred his role as head of professional services to his brother Robert Jones in order to concentrate on setting up a consulting division, and this explains his lack of direct and detailed knowledge.

Michael Sanchez

Mr Sanchez was the financial director at ASE over the relevant period. Like Mike Jones, he came across as an honest witness, but also as tending to be partisan in his written and oral evidence and not wholly reliable when it came to giving evidence outside of the documents. My assessment was that he had little real involvement in the relationship between the claimants and ASE at the time, regarding it primarily as a credit control issue with the detail to be largely delegated to Ms Heap rather than a contractual relationship.

Michelle Malone

Michelle Malone has been employed by ASE over a long period of time in the tax department. She came across as honest. I accept her evidence as largely non-partisan and reliable, but there was one part of her evidence, in relation to her involvement in the Borders issue, where I was satisfied that she had persuaded herself of the accuracy of her evidence and that in fact her recollection was inaccurate.

Variation of the SLA

The defendant pleaded case is that the SLA was varied so that: (1) the contractual terms offered to and agreed with ASE’s clients including discounts or reductions were “determined on a case by case basis by ASE with input from the claimants when considered necessary” and were agreed to and accepted by the claimants [¶17.1-2 Defence]; (2) ASE paid WLT when it was paid by its client and on an ad hoc basis periodically as arranged orally between Mr McConomy and Mr Sanchez [¶17.5 Defence].

The claimants deny that the SLA was varied, pleading that the case advanced amounts to little more than asserting that ASE at times acted in breach of the SLA and that the claimants did not object.

In their response to the claimants’ request for further information ASE said that it would refer to dealings with a lengthy list of 34 other clients to support its case as regards variation but save in relation to 3 such cases it did not plead a specific case as to what it said had happened which would support its case. Moreover, of those three, one was said to have been offered a reduced fee “as agreed with” the claimants, which did not appear to advance its case. It did however also identify 8 cases where it said that the clients had been charged in accordance with a “ratchet” fee which it said had been proposed by Mr McConomy in January 2014 instead of the standard 5% fee, and also identified a further 10 cases where it said that “with the knowledge and consent of the claimants discounts or reductions were agreed on a case by case basis”, although again it is not quite clear how this advanced its case.

ASE’s case in relation to these 34 clients was addressed by Mr McConomy in a schedule to his witness statement. As regards the other 2 of the 3 clients identified above he gave evidence that he had indeed been asked and had agreed that a discount should be given, due to complaints having been made by the clients about the size of the fee and the prospect of securing future capital allowance services work. The general picture that I have gained is that non-standard terms, whether original or by way of subsequent discount or reduction, tended to be agreed as between Mr McConomy and ASE before ASE agreed them with the client, albeit that the agreement was oral rather than in writing.

This is consistent with the evidence of Mr Hodgson, who was very clear in his evidence that he knew that it was necessary to obtain Mr McConomy’s consent before offering non-standard terms to a client. The evidence of Ms Sayle was to similar effect. It appeared that Mr Lwin was not quite so clear in his understanding, perhaps because he had little or no knowledge of the terms of the SLA, but even he accepted in evidence that he understood that any discount would not be agreed without reference to Mr McConomy. Ms Malone said that she did not know about the terms of the SLA, but that she would always have referred to Mr Hodgson before agreeing any non-standard terms.

As Mr Harper submitted in closing, the evidence of Mike Jones and Mr Sanchez as to these matters was of limited if any relevance because they had little or no involvement in the day to day operation of the SLA. In Mike Jones’s case, this was because as I have already indicated there was a restructure during the lifetime of the relationship between the parties. At the time of the SLA he was the head of the professional services division, and hence had overall responsibility for tax services including capital allowance services, whereas subsequently there was a restructure in which he took over responsibility for a separate profit optimisation consulting division and Robert Jones became head of the professional services division. Whilst this may support his defence to the claim made against him personally – as to which see later – it does mean that he was unable to give any direct evidence as to how the SLA had operated in practice. Moreover Mr Sanchez had no detailed knowledge of the SLA; as I have already indicated his only interest was in invoicing and payment, both as between ASE and its clients and as between ASE and WLT.

Mr McConomy accepted in cross-examination that when asked he had never refused his consent to a non-standard term or a discount or a reduction. In closing submissions Mr Maynard-Connor referred to one client (Howards) where Mr McConomy accepted that he had agreed a discount in order to ensure that the client did not cancel the work, even though in his view he was not responsible for the delay of which the client was complaining, and to another client (GGT Estates) where Mr McConomy agreed to accept a revised payment split of 50/50 as opposed to 80/20, in circumstances where Mr Hodgson was emailing him immediately after the event to confirm that he was in agreement. Later in his closing submissions Mr Maynard-Connor accepted, correctly in the light of the evidence, that “in the majority of cases Mr McConomy’s input was sought before or at the time the fee discount was agreed with ASE’s client”.

There was an issue as to whether or not the agreement reached in February 2014 about using the ratchet fee was intended to apply to all clients from then on as the “default” standard term - as ASE says and indeed as Mr Howles accepted in cross-examination - or only where it was necessary to do so in order to fend off competition from firms to which certain ex-employees had gone to work and in respect of which ASE felt vulnerable to poaching - as Mr McConomy said, although he also accepted that he left it to ASE to decide where it was necessary to offer a ratchet fee. However there was no such qualification in the email which he sent to Mr Howles on 18 February 2014 following the meeting at which the ratchet was discussed, and it is clear from Mr Howles’ email circulating Mr McConomy’s email internally that he at least was working on the basis that it would be used as the default term going forwards, and there is no evidence that anyone contradicted him. I am satisfied therefore that this is how it was understood at the meeting, and in any event I am satisfied that in practice a ratchet fee did become the default choice, albeit with Mr McConomy’s consent. It is also clear that in some cases the ratchet fee was refined further to include a cap on the amount of the 80% invoice so as not to exceed the first year’s tax saving and that Mr McConomy was perfectly happy to agree this to ensure that the work was secured, without anyone thinking that it needed to be run past him first, especially since it only deferred payment rather than reducing it permanently.

In conclusion, I am satisfied that whilst Mr Hodgson was still head of tax §7 of the SLA was substantially adhered to, save only that no-one was particularly troubled about Mr McConomy’s consent having to be put in writing. Later, in circumstances where no-one at ASE had the precise terms of the SLA clearly in mind, and where Mr McConomy was accommodating both about agreeing non-standard terms for letters of engagement and agreeing subsequent price discounts or reductions, there were some occasions where his consent was not sought in advance and where he did not object when informed subsequently, but those occasions were the exception rather than the rule, other than in relation to the use of the ratchet or capped ratchet. None of this is surprising, since it is clear that at an operational level the relationship was largely both good and productive, as demonstrated by the increasing volume of work generated from year to year. In particular it is clear that Mr McConomy and Mr Howles worked closely together to obtain work, and there would normally be no question of Mr McConomy not being consulted about the terms of any capital allowance services proposals nor of his not agreeing to the non-standard terms put forward.

As regards payment, it is the case that - save with one exception - ASE never paid WLT within the 60 day payment terms or indeed anything close to that. Mr Sanchez was clear in his evidence that his priority was ASE’s cash-flow, so that if Mr McConomy was not chasing for payment he did not see paying WLT as a priority. His approach was no more formulated than that. He did not have the payment terms of the SLA in his mind when making these decisions; he simply treated WLT as yet another supplier, payment of whose invoices he would juggle to ASE’s best advantage.

Mr McConomy frankly accepted that WLT was in a very fortunate position in having extremely low overheads, very quickly becoming a cash rich business which had no pressing need for payment of its invoices. He also frankly admitted that in those circumstances he was “laid back” about ASE’s non-adherence to the SLA payment terms. There was only one occasion, at an early stage in November 2011, when he refused to do any more work until an outstanding invoice was paid. I do accept that there were some further occasions, as Mr Hodgson, Mr Lwin and Ms Malone agreed, when he did chase them for payment, but it appears that they would simply direct his request to the finance department. There is no evidence of his vigorously chasing the finance department for payment. There is no evidence of his challenging the finance department on those occasions when it was made clear that WLT’s invoices had not been passed for payment because ASE had not itself been paid by the client. He appears to have taken the view that there was nothing he could do to change ASE’s approach and, indeed, there were occasions where he accepted that there was no point in ASE paying WLT when it could expect to receive payment back again anyway by way of dividend representing its share of the profits. Even towards the end of the relationship, in autumn 2014, his requests for payment were in remarkably restrained terms, given the amounts outstanding.

The applicable law as regards the variation of a contract is to be found in Chitty on Contracts (32^nd edition) at 22-32 and following. Unilateral action or notification is insufficient; mutual agreement is required. Although not addressed in terms in this section of Chitty, there is no reason in my judgment why an agreement to vary should not be inferred from conduct. Consideration for the variation is required, although a practical benefit may be sufficient – as to which see the recent analysis by the Court of Appeal in MWB Business Exchange v Rock Advertising [2016] EWCA Civ 553, to which I have been helpfully referred by the parties. A mere forbearance or concession is not sufficient, although it may take effect as a waiver or in equity. Waiver in this sense is dealt with in Chitty at 22-040 and following. What is required is either: (a) a voluntary accession by [WLT] to a request by [ASE] that [WLT] should not insist on a mode of performance fixed by the contract; or (b) a representation by [WLT] that it would not insist on that mode of performance followed by an act in reliance on that representation by [ASE]. It may also be oral or written or inferred from conduct. Consideration is not required; however [WLT] is entitled to give reasonable notice to [ASE] requiring it to comply with the original mode of performance unless in the meantime it has become impossible or inequitable to do so.

In MWB the Court of Appeal followed its earlier decision in Globe Motors v TRW Lucas [2016] EWCA Civ 396, which considered the effect if any of a standard form anti-variation clause (such as is contained here both in the SLA itself and the shareholders agreement). The decision in that case was that such a clause cannot operate to prevent a party from pleading and proving an oral variation. Although obiter, it was the subject of full argument and express consideration by all three members, and was expressly followed in the MWB case where the point directly arose. I do not accept the submission made by Mr Harper in his written closing submissions [¶4.1] that the threshold of proof in terms of a non-compliant variation is raised, since as I read [109] that is not what Beatson LJ was saying, and I am comforted by the fact that nor did Kitchin LJ in MWB think so either – see [28]. I do however accept that Globe establishes that the presence of such a clause may make it more difficult for the party alleging an oral variation to show that the parties intended what was said to have legal effect: see [117] per Underhill LJ and [120] per Moore-Bick LJ.

In this case, it is apparent from what I have already said, and I am satisfied and find, that there was no express agreement to vary the relevant terms of the SLA, whether in writing or orally. I am also satisfied that no such agreement can be implied from anything written or said by the parties. Thus ASE has to contend for a variation inferred from conduct. In closing submissions Mr Maynard-Connor rightly observed that it was necessary to consider the case in relation to the contended for variations of §7 and §13 separately, since it was possible that one was varied and not the other.

As regards the contended for variation to §7, I am satisfied that ASE has failed to make out its case. In order to establish a variation by conduct it would be necessary to show that there was a clear and consistent pattern of behaviour whereby ASE agreed non-standard terms with its clients without prior reference to Mr McConomy on behalf of WLT, in circumstances where it was making it plain to Mr McConomy that it did not regard itself as having any obligation to do so, and whereby Mr McConomy simply accepted that without protest. The evidence to which I have referred comes nowhere near to establishing this. Instead it establishes that the norm was for consent to be obtained and sought, with non-standard terms only ever being agreed beforehand rarely, and only then on the basis either that his consent would be sought shortly afterwards or in the justified belief based on what had been discussed and agreed in the February 2014 meeting as regards the ratchet and capped ratchet fees that he had consented to these non-standard terms being agreed anyway.

Furthermore, in my view the point made in the Globe Motors case is of some relevance to a case such as the present, where ASE is unable to point to any clear express agreement to vary a particular term or terms, but instead is seeking to establish a variation by conduct. In such a case it is more difficult in my view to establish that either or both of the parties intended, looking at the matter objectively, a permanent legally binding variation of the contract going forwards, especially in circumstances where it is not entirely clear what the precise terms of the variation are. Thus, as the claimants ask rhetorically, what are the precise terms of the varied §7 as regards agreement of non-standard terms? As I have said, on a true construction of the SLA it was always open to ASE to agree non-standard terms with its clients regardless of WLT’s consent. Thus the variation contended for would have to be that ASE had no obligation to obtain advance consent at all, so that failure to do so would not even amount to a breach of contract by ASE. It is impossible in my view to infer such a variation from the conduct contended for, even on ASE’s case.

I reach the same conclusions as regards the contended for variation to §13. I agree with Mr Harper that it is not without relevance that in his email of 22 April 2014 Mr Sanchez referred to ASE’s invoices as “overdue”, in the context of seeking to agree a procedure for netting off dividend payable to ASE against such amounts. That was an implicit recognition in my view that the invoices were strictly speaking payable on the date stated, but that both parties were proceeding on the basis that in practice WLT was reasonably relaxed about payment. Being reasonably relaxed about payment in general is very far from agreeing, objectively, a variation under which ASE was allowed to pay whatever and whenever it wished for the remaining duration of the relationship. As Mr Harper submits, the variation contended for by ASE is hopelessly vague and non-specific. If it was simply a variation so that it was “pay when paid”, that would at least be clear, but that is not ASE’s case, and ASE has not put forward any evidence either as to when it was paid each invoice by its client or that it paid WLT once it received payment. ASE goes further and says that it was a variation under which it could even after it was paid defer paying WLT until it considered it convenient to its cash flow to make an ad hoc payment of outstanding invoices. Again in my view it is impossible to see how it could seriously have been objectively intended by either or both parties that ASE’s conduct in making these ad hoc payments, and WLT’s conduct in not vigorously contesting this, could lead to the SLA being permanently varied in such terms.

In conclusion, I reject ASE’s case as regards variation.

I should say that whilst I have not yet in this judgment considered the evidence in relation to the 5 individually disputed cases, to which I now turn, I have taken them into account when considering the variation issue. I accept that it is at least possible, although neither party has addressed the matter in this strictly chronological way, that conduct in relation to one or more of the earlier cases might be sufficient to tip the balance in favour of variation. However on the facts I am satisfied that they do not. Although in certain of those cases there appears to have been a reduction agreed without Mr McConomy’s advance consent, there is no indication of this having been notified to him or his reacting in circumstances which would justify a plain inference that he was accepting ASE’s entitlement to do so without reference to him.

The same is true in relation to the events of and relating to 20 October 2014, where ASE requested and WLT agreed to and did submit credit notes and revised invoices ostensibly writing off the balance between what would have been due under the standard payment terms and what ASE was saying was due under the non-standard terms it had agreed. Apart from anything else, reliance on these events would be a “bootstraps” argument in relation to the 5 individually disputed cases anyway. But in any event, and whatever the strength or otherwise of the arguments in relation to waiver of breach and affirmation founded on these events, which I address later, it is impossible in my view to say that it could clearly be inferred from this that WLT was agreeing to vary §7 in relation either to the 5 individually disputed cases or more generally, not least in circumstances where Mr McConomy said in terms that he did not agree with the discounts offered.

Border Cars [“Border”]

In short, as at December 2013 ASE and its prospective client Border were in discussions in relation to the potential provision of capital allowance services (which had been quoted on the standard 5% fee terms) but also in relation to audit work (quoted at £18,000) and reconstruction advice work (quoted at £5,500). Border was a potentially valuable client which ASE was keen to win, and there was a pre-existing personal relationship between Trevor Jones and Mr Mike Fusco, who was the effective owner of the Border group, albeit that the discussions were being conducted by Mr Colin Stairmand, the Border group general manager. On 31 January 2014 Border signed up to a letter of engagement in relation to the capital allowance services on the standard terms as quoted.

By April 2014 the first batch of reports had been produced and invoices had been submitted to Border for the first 80% of the fee. However Mr Stairmand then emailed complaining about the fee on the basis that he had believed that the fee would be 5% of the tax repaid, as opposed to 5% of the value of the capital expenditure identified, which was of course what the letter of engagement had stated, consistent with the terms of the SLA. Following a subsequent meeting Mr Howles emailed Mr Stairmand on 26 June 2014 making no concession on that point but offering, in effect, to write off the remaining 20% of the standard fee subject to ASE being given the audit work. There is an issue as to whether or not Mr McConomy was aware of and agreed this proposed write off and the fact that it was conditional on ASE receiving the audit work (which of course was of no direct benefit to WLT) before the offer was made, but I am satisfied from the terms of his subsequent email of that day (in which he supported the offer), my findings as to the close working relationship between Mr McConomy and Mr Howles, and my assessment of Mr McConomy as a commercially minded man who was not averse to agreeing reasonable discounts if that would benefit ASE and, potentially, WLT, that he was aware of the proposal and did agree it.

Mr Stairmand was not impressed with this offer and on 8 July 2014 emailed complaining that Mr Howles had originally misrepresented the fee proposal as being one for a fee of 5% of the tax repaid. He said that this was what he thought Border ought to pay and indicated that if a deal could be done Border was willing to give the audit and reconstruction work to ASE. There is no evidence that this email was copied to Mr McConomy. On 14 July 2014 there was a meeting of the ASE professional services standards board where this matter was discussed and where Mr Lwin was authorised Mr Lwin to make a final settlement offer, without offering any further discount, failing which lawyers would be instructed. It is clear from the minute that one reason for this hard line being taken was that the professional standards board did not think any more work would be forthcoming from Border to justify taking a more emollient approach. It is also clear that at this stage they were not so concerned by threats previously made by Border to generate adverse publicity against ASE that they were prepared to back down. Mike Jones was not present at this meeting, since as I have said by this time his brother Robert Jones had taken over the role of head of the professional services standards board. I am satisfied that at this stage there was no reason for Mike Jones to be involved in this matter and that he was not involved in it.

However Trevor Jones did become involved due, it appears, to his pre-existing personal relationship with Mr Fusco. He put a further proposal to Border for a 3 year payment plan in addition to the 20% discount already offered, but Mr Stairmand was holding firm. Mr Lwin recorded in an email that Trevor Jones had asked Mr Stairmand to “give him a reason to discount further excluding the audit and reconstruction advice fees”. It was agreed that there should be a telephone call to discuss this further the next day. I am satisfied that by this stage it had already been agreed in principle that any deal would include the audit and reconstruction work being given to ASE. It is also clear from the email chain and my assessment of the evidence overall that Mike Jones was not involved at this stage either. It is also clear from subsequent emails that although no-one had given Trevor Jones any specific negotiating limits, no-one was expecting him to depart materially from the line agreed at the professional standards board meeting.

However, in the following telephone discussion involving Trevor Jones and Mike Fusco as well as Mr Stairmand, which Mr Howles overheard as he was in a car with Trevor Jones at the time, an agreement was reached for a significantly reduced payment of £45,000 for the capital allowance services, £25,000 to be paid in year one and the balance of £20,000 in year two, with a further discount of up to 15% from the £20,000 being given subject to Border procuring referrals of further capital allowance services work and the fees from that work achieving a certain level. I have no doubt from Robert Jones’ reaction to this, as evidenced in his subsequent email, that an agreement at this level of discount had not been discussed, let alone approved by him in advance, and that he was extremely unhappy about it. I am also satisfied, and indeed Mike Jones agreed under cross-examination (having failed to address the detail of this at all in his witness statement) that at this point he became aware of what had happened through by being informed by his brother.

Mike Jones said that he then discussed it with Trevor Jones who told him that it was the best deal that could be done. He said that on that basis, and on the further basis that he believed ASE was stuck with the agreement anyway, he accepted the position. He claimed that he was considering this in the context of his position as a director of WLT as well as in his position as a director of ASE, and he also claimed that he would have mentioned it to Mr McConomy next time they met.

I am satisfied that it is reasonable to infer from the documents and from what happened that Robert Jones and Mike Jones decided that they would have to live with this deal not only because they did not want to become embroiled in conflict with their father Trevor but also because of the difficulty and embarrassment it would cause if – as appeared likely – Border took the view that a binding deal had been struck and that in any event it had a defence to the fees claim on the basis of misrepresentation by Mr Howles so that ASE would either have to back down or take legal action. In short, I am satisfied that they decided to make the best of a bad job. I am also satisfied however that Mike Jones simply did not consider WLT’s interests at this point, nor did he even consider involving or consulting Mr McConomy. I have no doubt that this is because he believed that ASE could do what it liked as regards reaching agreements with its own clients, and believed that WLT – which he regarded as effectively the junior partner in the relationship – would simply have to live with it. However I am also satisfied that he would have known that Mr McConomy would, if informed at the time, have expressed his dissatisfaction and exasperation with what had been, on any view, a shambolic approach within ASE to resolving the issue with Border, and might well have at least protested that WLT should not have to suffer financially.

In the circumstances I am satisfied that ASE was in breach of §7 of the SLA in agreeing a revision to the previous letter of engagement and thus agreeing non-standard terms with Border without first seeking and obtaining WLT’s agreement.

In the light of the available evidence it is not easy to make a clear finding as to whether or not the agreement struck between Trevor Jones and Mike Fusco was contractually binding as between ASE and Border. On balance I think that it was. It could have been argued that there was insufficient clarity on the terms of that commitment, or that the whole agreement was impliedly subject to formal contract. However as against the former argument it could be said with some force that, just because there was further negotiation about and refinement of the terms agreed, that does not mean that the terms already agreed were not sufficiently certain to be workable and thus legally certain even before that process took place. None of the further terms introduced appear to have been essential terms, either in themselves or in how they were regarded by the parties at the time. There is no clear evidence, contemporaneous or otherwise, that it was always understood that the agreement was subject to further working out or that it was subject to confirmation by Robert Jones or Mike Jones or to a revised signed letter of engagement being produced, agreed and signed. In the light of the complaints expressed by Mr Harper I should confirm that I have taken into account the subsequent email of Mrs Ashley and correspondence with Border (see [76] below), the evidence in cross-examination of Mr Lwin, and the complaints about Mike Jones’ evidence and the failure to call Robert Jones into account when reaching this conclusion. Even however if I was wrong about all of that I am also satisfied that it was reasonable for Robert Jones and Mike Jones on behalf of ASE to take the view that it was in ASE’s best interests in all of the circumstances not to seek to resile from the deal already struck by their father.

It is clear from the contemporaneous email of Mrs Ashley that she was not particularly impressed with the level of fee negotiated for the audit work and stipulated that the formal letter of engagement should contain terms to ensure that the work was as profitable as it could be for ASE. On 8 August 2014 a formal revised letter of engagement was sent to Border who approved it subject to some minor clarification on 19 August. A final revised version was produced and eventually signed in October 2014.

On 2 September 2014 Mr Rossiter emailed Mr McConomy providing a reconciliation of the invoices submitted that month. As regards Border it stated that the amount invoiced by WLT to ASE should be reduced from £40,304.79 (i.e. its 55% share of the 80% invoice originally submitted by ASE) to £13,750 (55% of £25,000) on the basis that ASE’s invoice had been reduced to £25,000, although it also recorded that Mr Rossiter was “unsure on current situation”. He asked Mr McConomy to “amend and re-invoice the correct amount”. I accept that this was the first that Mr McConomy had heard of this, and he asked Mr Howles for an explanation. He claims that he did not receive an explanation until later that month, whilst they were both on a client visit, when Mr Howles said that the deal had been done by Trevor Jones and that it would lead to more capital allowance services work. It is clear from the contemporaneous emails that this must have been on or around 23 September 2014. Mr McConomy claims that when he asked Mr Howles about this the latter was unable to give a concrete example of more capital allowance services work and that as a result he resolved to raise it directly with Mike Jones at the next WLT board meeting.

However I do not accept that Mr Howles would have been unable to say that there was at least one concrete opportunity by that stage, because on 19 September 2014 Mr Stairmand had provided Mr Howles with details of a contact for capital allowance services work, known as Mathers. It is inconceivable in my view that after 19 September 2014 Mr Howles would not have told Mr McConomy about this promising lead if he had been asked. Nonetheless by 10 October 2014 Mr Lwin was reporting not only that Mr Howles was “chasing down” this lead, which looked promising but had not yet materialised, but also that Mr McConomy “would like to have been consulted early on this”. It is clear that Mr Howles must have reported this to Mr Lwin. Since Mike Jones was – unusually – one of the recipients of this email he was by then also aware that Mr McConomy had raised a concern about not being consulted. It was shortly after this that a meeting between Mr McConomy and Mike Jones was arranged to take place on 13 November 2014, and I have no doubt that both men expected that this would likely be something for discussion at that meeting. I will refer further to that meeting below.

In the meantime however the events of 20 October 2014 occurred in relation to the credit notes and re-issued invoices, and again I will return to those below.

For present purposes, it suffices to say that: (a) at some stage, which is not clear from the documentary or other evidence, Mathers was signed up as a client for the provision of capital allowance services; (b) on 28 November 2014 Mr McConomy produced his report for Mathers, noting that the outcome would result in “just under 40k in gross client fees so worthwhile certainly”; (c) on 16 December 2014 WLT issued its invoice in relation to Mathers in the sum of £17,868.42 plus VAT; (c) on 12 January 2015 Mr Lwin confirmed to Border that ASE would apply the full 15% reduction to the final £20,000 due to be invoiced by month end.

Thus the end result was that under the original letter of engagement ASE was entitled to be paid £99,515 (80% being £79,612 plus the remaining 20% being £19,903), whereas under the revised letter of engagement ASE was paid £42,000 (i.e. £45,000 less 15% discount on £20,000), with the resulting shortfall being a not inconsiderable £57,515. WLT, being – as I have found - bound by the discount as a matter of construction of the SLA, therefore would have suffered a total shortfall of £31,633.25, i.e. 55% of £57,515. It follows, unless it can be demonstrated either that the shortfall was written off by WLT in a legally binding manner or that Mr McConomy would have agreed to the discount had he been asked at the time, that WLT has suffered a loss in that amount.

I find below that WLT did not write off the shortfall in a legally binding manner. I must therefore consider here whether or not Mr McConomy would have agreed to the discount had he been asked at the time. If I am satisfied that he would, whether in whole or in part, then to that extent WLT cannot establish that it suffered a loss capable of being recovered by way of award of substantial, as opposed to nominal, damages.

Firstly, I have already found that at the time he was aware of and was prepared to go along with the balance of the 20% fee being written off. As regards the remainder what would have been his reaction had he been asked at the time? He would have been being asked to reduce WLT’s entitlement by a significant amount on the basis of a combination of factors, namely that: (i) Border had an argument that Mr Howles had misrepresented the terms of the letter of engagement which gave it a defence to a claim for the full fee; (ii) Border was threatening to make public its dissatisfaction with ASE, which had the potential to damage ASE’s prospects of winning future work, including capital allowance services work; (iii) Border was prepared to give ASE its audit and reconstruction work – relatively modest value work but potentially a reliable future income stream; (iv) Border was prepared to refer what might be lucrative further capital allowance services work to ASE.

Mr Maynard-Connor submits that this question must be considered in the context of the relationship as it then stood, which was that the joint venture relationship was producing extremely good revenue for both companies, with 2014 being the best year ever. He also reminds me that, as I have already said, Mr McConomy had never previously refused to agree a non-standard fee nor a request for a reduction or discount. This included one case (Howards) where the reason was due to delay by ASE for which Mr McConomy was not at fault. He also submits that it is extremely significant that even as at 30 September 2014 Mr McConomy was emailing Mr Howles with advice that the fee to win a job against competition from KPMG needed to “balance market rate [for the work] with what the client is worth to ASE, how likely is it to lead to other tax/audit/advisory work, will that work be truly profitable and if so what is the quantified strategic value to the firm”. This advice was being given at the point where, according to Mr McConomy, he had already become aware that he was sufficiently distrusted by ASE - due to his continuing to remain on friendly relations with departing employees who ASE feared were engaged in competition - that he was not being given the name of the potential client. It is also said by ASE that this approach was consistent with his earlier approach, for example in relation to OMC in June 2013 (as to which see below).

These are all extremely strong points in my view. Although Mr McConomy says that the email of 30 September 2014 related to current year work as opposed to historic work and, hence, the 5% standard fee would never have been regarded as appropriate, that does not detract from the force of the point that Mr McConomy was accepting that ASE should make the decision by reference to its own commercial interests rather than by reference to market rate alone. In his witness statement Mr McConomy suggested that he was not intending to bind WLT to accept 55% of the discounted fee had a reduced fee been proposed and agreed on that basis, but I am unable to accept that this reservation was expressed in the email, or even that Mr McConomy would have attempted to hold ASE liable for 55% of the full fee had a reduced fee been negotiated following his advice.

It is also clear from what actually happened subsequently that Mr McConomy was particularly aggrieved that Mike Jones and Robert Jones had let Trevor Jones reach a deal on a personal basis with Mike Fusco. Whilst I accept that this was a genuine and justified concern, and indeed aggrieved Robert Jones and Mike Jones as well, that is not a relevant consideration when considering the counter-factual hypothetical state of affairs, which is whether or not Mr McConomy would have agreed the discount actually agreed at the time had he been approached for his consent on an informed basis in advance of any deal being struck.

Mr McConomy places great store on his also being particularly aggrieved when he discovered that the discount had been agreed to secure audit and reconstruction work from which WLT would derive no benefit. However I am unable to accept this, and regard it as a retrospective argument to buttress his case. My reasons for reaching this view are that: (i) Mr McConomy did not complain in June 2014 about writing off the 20% fee for precisely that reason; (ii) the terms of his email dated 30 September 2014, consistent with his previous approach, show that he was willing to accept ASE taking this approach; (iii) Mr McConomy failed to complain about this until well after the event, for the first time in his solicitors’ letter dated 24 March 2015. At the time I am satisfied he took, and would have taken, a far more commercial approach, in short that what directly benefitted ASE would indirectly benefit WLT.

In conclusion, I am satisfied on the balance of probabilities that Mr McConomy would have agreed on behalf of WLT to the discount agreed by ASE with Border had he been asked at the time. It follows that WLT has failed to establish any substantial loss flowing from the breach of contract by ASE.

In the circumstances I do not need to go on to consider the personal claim against Mike Jones as regards Border, but do so briefly for completeness. Firstly, I am satisfied that there is no basis for contending that Mike Jones negotiated or agreed the discount with Border, which is the case pleaded against him. I am satisfied as I have said that the agreement was reached before he had any knowledge of it. Even if that was wrong, I am also satisfied that whilst he did not expressly consider WLT’s interests separately at the time he would, had he done so, have been entitled to have been satisfied in good faith that the agreement was also most likely to promote WLT’s success (per s.172(1) Companies Act 2006), on the basis that it was better for WLT in the long term to ensure that ASE maintained a successful business relationship both with Border and the wider automotive industry than to become embroiled in a bad tempered legal dispute, with potential unwelcome publicity, and which there was the risk of losing.

I should also observe here that, on the the proper construction of the SLA, whilst the agreement at first blush was prejudicial to WLT in that it reduced its entitlement under the SLA in fact, since it did not prevent WLT from pursuing ASE for damages to recover any actual loss sustained as a result of ASE’s breach, the agreement reached with Border was not in substance prejudicial to WLT. It would follow that there would be no material breach of s.172(1). This is also relevant to the pleaded breach of the “no conflict” rule under s.175(1) Companies Act 2006. Clearly the parties, when entering into the shareholders agreement, were aware that Mike Jones was, and would remain, a director of ASE as well as becoming a director of WLT. Thus there was always the potential for some conflict between the two positions, and WLT could not complain about that. In deciding to act in ASE’s interests in not insisting on seeking to undo the agreement reached by Trevor Jones, in circumstances where that would not prevent WLT from seeking to enforce any right to make a claim in damages against ASE, in my view Mike Jones made a reasonable decision.

Oldham Motor Co [“OMC”]

On 17 June 2013 Mr Hodgson, who had been to see OMC as a prospective client, emailed Mr McConomy saying that he had discussed undertaking historic capital allowance services work for them and had “discussed 3% with them on this as a big local business who we want to work with”. He was clearly, in the context of his evidence generally about how he worked with Mr McConomy, expecting the latter to respond if for whatever reason he was not happy with the proposed fee level. Mr McConomy does not suggest that he replied to Mr Hodgson to say that he was not willing to agree to a 3% fee on that basis. He agreed in cross-examination that if the client had not been willing to instruct ASE at 5% but had been willing to do so at 3%, he would have agreed to undertake the work at that rate so long as it was profitable.

However it appears that this was not progressed, probably due to the departure of Mr Hodgson from ASE at around this time, and it was not until December 2013 that a letter of engagement was produced which was signed in January 2014. The letter of engagement provided not for the 3% fee discussed but for the standard 5% fee. There is no explanation as to why this had happened, although it is possible that the explanation lies in the email from Mr Kendrick of 5 December 2013 indicating that the terms of the letter of engagement should be the same as for another client known as Furrows, which led to the letter of engagement being produced, sent and signed up to without anyone appreciating that the fee discussed 6 months earlier had been 2% less.

The work was done, but the subsequent covering letter and invoice dated 26 March 2014 indicated that the fee claimed was calculated on the basis of a 3.5% fee. The same day Ms Malone had emailed Mr Howles asking him “did you say 3.5% on OMC”, to which he simply replied “yes”.

There is a paucity of evidence about this. Mr Howles said that he had reduced the fee with the agreement of Mike Jones and Mr Lwin in order to seek to win its business as an audit client. He said that he had not raised it with Mr McConomy because he did not think it would affect WLT’s fee. This was disputed by them, and there is no contemporaneous documentary evidence to support it, in particular no email traffic between the three men, as might be expected had this happened. Ms Malone did not deal with this in her witness statement, nor was she cross-examined about it. There is no other evidence which sheds any light as to what happened and why.

I am unable to accept Mr Howles’ explanation which involves accepting that, whilst everyone at ASE believed that it was entitled to invoice and OMC would expect to receive an invoice calculated on the basis of a 5% fee signed up to only 2 months previously, nonetheless it was reduced to 3.5% as a pure goodwill gesture, in the hope of winning audit work, but with no commitment from OMC to giving that work to ASE. If that had been the case, I am sure that not only would there have been some email traffic about it, not only internally but also with OMC, but also that there would have been at least some reference to this in the covering letter enclosing the invoice, when in fact there was none. The more likely explanation in my judgment is that in March 2014 it was realised that the initial discussion with the client had involved a fee of 3% and it was decided to charge the client 3.5% to avoid upsetting the client. Whilst I acknowledge that: (a) one would also have expected to see some documentary evidence of this as well, when again there is none; (b) there is also the oddity that the fee charged was 3.5% and not 3%, nonetheless on balance it still seems to me to be the more likely explanation of the two.

Whilst also I accept that there is no evidence that Mr McConomy was informed of this reduction, so that technically there was a breach of §7, I am completely satisfied that if Mr McConomy had been reminded in March 2014 about the discussion and emails in June 2013, and informed that the letter of engagement had been drafted, sent out and signed under a mistake, he would have had no hesitation in agreeing the reduction to 3.5%, even if he had also been informed that ASE was also keen to win OMC’s audit work as well.

It follows that I am not satisfied that WLT have established any loss in relation to this case.

It also follows that I am satisfied that there is no basis for holding Mike Jones liable for this, since he had no role in negotiating or agreeing the discount. Moreover, even if he had, it would have been entirely reasonable in the circumstances, both in ASE’s and in WLT’s interests, to charge at only 3.5%.

Magna Motors [“Magna”]

In November 2013 Magna signed a letter of engagement containing the standard 5% fee term and in January 2014, the work having been undertaken, was invoiced on that basis. However the client was unhappy with ASE for a number of reasons. Whilst some were historic and had nothing to do with the capital allowance work, two specific complaints about the capital allowance work were: (a) a complaint about a delay in producing the report; (b) a complaint that the invoice exceeded the tax saving achieved in the first year. The email from Ms Sayle recording these complaints also records that Mr Lwin and Ms Sayle had explained to the client that the total tax saving would be substantially more, that they had proposed capping the first invoice at the amount of the tax saved that year, with the balance not being payable until the following year, and that this proposal was being considered by the client. This email was sent to Mike Jones and Mr Lwin as a briefing note in preparation for a client meeting which had been arranged for 6 March 2014.

It is common ground that either at or immediately following the meeting the overall fee was reduced by £3,157.60 down to £15,000. It is not suggested by ASE that Mr McConomy was consulted about this or even notified of it and in the circumstances there was plainly a breach of §7 of the SLA.

It appears that Mr McConomy became aware that this had happened within a few days, as a result of his being forwarded an email sent by Magna to Mr Freeman, a former employee of ASE, who had gone to work for a rival firm and who was seeking to solicit Magna’s business. Perhaps not surprisingly in the circumstances Mr McConomy did not divulge to ASE that he had come to learn of this reduction, nor did he protest about it at that time. However when, on 29 April 2014, Mr McConomy was emailed by Mr Rossiter with 6 queried invoices, of which that relating to Magna showed that ASE’s invoice had reduced to £15,000 as “agreed by Amanda [Sayle]”, whilst Mr McConomy did not re-issue WLT’s invoice at that stage neither did he query or protest the reduction at that stage, when he could have done so without explaining that he already knew of it from a third party source.

In my judgment it is inconceivable that Mr McConomy would not have agreed this modest reduction had he been asked for his consent on behalf of WLT at the time. It was modest, and there were good reasons for proposing the reduction even if – as I accept – there was no basis for suggesting that the delay was his fault, and it is clear from the fact that Mr Freeman copied the email from Magna to Mr McConomy that there was the potential for further work there which would be of interest to him.

Accordingly I am satisfied that WLT has failed on the balance of probabilities to establish that it has suffered a loss sounding in substantial damages as a result of this breach.

The question, albeit academic as a result of the above decision, which was most canvassed in evidence related to Mike Jones’ potential liability as director for this, and was whether the reduction was agreed at the meeting, at which Mike Jones was present, or subsequently as a result of a proposal made in an email sent by Ms Sayle following the meeting about which he says he was ignorant. As to this, I am satisfied from a reading of the email from Ms Sayle and the response to it that the proposal was made for the first time in the email. That is because neither email reads as if Ms Sayle’s email was simply confirming an offer already made at the meeting. I am also not satisfied on the balance of probabilities that this offer was discussed with and agreed by Mike Jones as well as by Ms Sayle and Mr Lwin after the meeting. That is because neither the email itself nor the covering internal email was sent or copied to Mike Jones, whereas both were sent or copied to Mr Lwin and Mr Howles. When Magna’s response was forwarded by Ms Sayle to Mike Jones, neither that email nor his response reads as if Mike Jones had already been involved in and hence aware of the proposed fee reduction. Given the amount involved, which on any view was modest and well within Mr Lwin’s authority, and given that Mike Jones was not at that stage directly involved with the professional services standards department, that does not seem to me to be surprising. There can be no basis for a submission that Mike Jones could sensibly have intervened and sought to undo the agreement once he became aware of it. It follows that I would not have held Mike Jones liable for this even if breach and loss had been established. Furthermore, and for the same reasons as given above in relation to Border and OMC, I am satisfied that it would have been reasonable for Mike Jones as director of WLT to agree it.

Heaton Park Garage Limited [“HPL”]

The letter of engagement of July 2013 was again on the standard 5% fee basis, as was the invoice submitted in October 2013. However by February 2014 Mr Lwin was reporting that the client was “disputing the work done commensurate to the fee” and asking Mr McConomy to provide details of the work he had done so as to be able to justify the fee to the client as a matter of urgency because “we have potential extra fees to agree”. It appears from the undated email at [6/1213] that by 27-28 February 2014 Mr Lwin had already offered “in a spirit of compromise” to reduce the fee by £3,551.68 down to £15,000, as well as offering to undertake some school fee tax planning work for a discounted fee of £4,000 plus legal fees. It is also clear from the client’s reply and subsequent correspondence that he was raising a mis-selling type complaint similar to that raised by Border and that ASE had difficulties in locating a signed returned letter of engagement.

The end result was that a compromise was agreed. As Mr Maynard-Connor has clarified in his submissions produced following the circulation of the draft judgment, the compromise also involved writing off the entitlement to the further 20%, and subsequently in March 2014 involved reducing the £15,000 to £10,000. The end result therefore was that WLT’s entitlement was reduced from £12,754.28 down to £5,500. Again Mr McConomy was not consulted or asked for his consent on behalf of WLT and again there was in the circumstances a breach of §7 of the SLA. However again I am satisfied on the balance of probabilities that it is inconceivable that Mr McConomy would not have agreed these modest reductions had he been asked for his consent on behalf of WLT at the times, in circumstances where it was modest and where there were good reasons for proposing the reduction, albeit that again they did not result from any complaint in relation to Mr McConomy’s work.

Thus no loss has been established, and in this case there is simply no factual basis whatsoever for contending that Mike Jones was in any way involved in this matter, or that even if he was that it would have been unreasonable for him to conclude that it was reasonable overall in WLT’s wider interests.

GGT Estates Limited [“GGT”]

I have already noted that there was a variation of the original letter of engagement from the standard 80 / 20 payment terms to 50 / 50 payment terms – see [52] above.

ASE had obtained a commission to undertake capital allowance work for GGT in relation to two particular units. GGT was part of the Motorline group, which used a local accountancy practice, The Carley Partnership [“Carley”], for its audit and general tax work. It followed that it was necessary for ASE and Carley to liaise as regards integrating any historic capital allowance claims into the relevant accounts and tax returns then in progress. ASE was keen to use the capital allowance work as a “foot in the door” opportunity with Motorline but, not surprisingly, Carley was equally determined to resist any such incursion. This silent battle for influence with the client goes some way to explaining what subsequently happened, which was that Carley was very quick to raise queries as to the accuracy of the report and proposed claims. Although these queries might have been viewed simply as matters about which ASE and Mr McConomy could not reasonably have been aware, Carley was keen to portray them as matters about which they ought to have been aware - or at least checked - before producing the report. Whatever the truth, by August 2013 ASE and Mr McConomy were in the uncomfortable position of having to acknowledge that as a result of the information now available the claim for one of the units could not now be pursued, with the result that the potential tax saving was also considerably reduced.

The end result was that the report had to be amended and re-issued. Furthermore ASE had to accept that the invoice already submitted, which had related to and been calculated by reference to the savings achievable on both units, was therefore overstated. As can be seen by the email correspondence, this resulted in a reduction in the total value to be invoiced from £32,930 down to £12,870, with a consequential reduction in the 50% first invoice, which thus had to be credited and re-issued in the sum of £6,435. WLT duly issued a revised 50% first invoice in the sum of £3,539.25.

At a meeting with the client on 9 September 2013, attended by Mr Kendrick (who had taken over the matter following the departure of Mr Hodgson) and Mr McConomy, it was agreed between ASE and GGT that the re-issued invoice for £6,435 would also be credited. According to Mr McConomy that was on the basis that the client was not, given the history of events, willing to pay it until the amended report had been accepted and the claim incorporated by Carley in the relevant return, whereupon it could be re-issued. Although ASE disputes this, and contends that it was written off unconditionally, the internal email correspondence from Mr Kendrick – who was not called as a witness - confirms that at that stage he still believed that at least some of the claim would be re-submitted, but that he was more interested in the “wider” possibility of obtaining very valuable future work from the Motorline group in relation to their property portfolio which, as Ms Sayle confirmed, included capital allowance work.

Later, in December 2013, at a time when Mr McConomy was undertaking further capital allowance work for Motorline, Ms Malone queried in an email to Mr Howles and Mr McConomy what was happening about the credited invoice. Mr Howles suggested she contact Ms Sayle, and Mr McConomy did not reply. There is no evidence that anything further happened in response to this query save that in early January 2014, when the tax department were in the course of seeking to reconcile unbilled work in progress for the year, Ms Sayle queried with Ms Malone whether the work relating to this job should be written off and Ms Malone did so without apparent reference to or instruction from anyone at higher level. In oral evidence neither Ms Sayle nor Ms Malone were able to assist as to what if anything happened after this. In June 2014 Mr Rossiter asked Ms Sayle for an update, in the context of Mr McConomy chasing payment of his invoice, with Ms Sayle’s only response being to forward the earlier credit note to him. There is no indication of any further response or of any further discussion, decision or action within ASE in relation to this matter. Although ASE has disclosed the minutes of the professional services standards board meetings there is no reference in any of them to this having been the subject of any formal discussion or decision. Mike Jones was asked about this and had no recollection of taking or being involved in any decision permanently to write off this claim, not surprisingly given that as I have said by this time he was no longer involved in this side of the business. Robert Jones, who was involved, has not been called to give evidence on this or any other aspect of this case, and no explanation has been given for his not being called. Mike Jones when asked in re-examination said that given the “massive potential project to be done with them … even if I had known about it I don’t think I’d have raised it. I think I’d have been going after the bigger opportunity”, but there is no evidence that this was the subject of a considered decision by anyone within ASE.

The schedule of 20 October 2014 produced by Ms Heap and Mr Rossiter included the two invoices raised by WLT in relation to this job together with their comment: “Never invoiced client – please send through a credit note”. As I have already noted in [65] above, Mr McConomy complied with that request, although as I explain later at the same time he said that he “did not agree with the discounts offered”.

The pleaded case is that ASE cancelled the fees otherwise due to WLT without seeking or obtaining its approval, resulting in a loss of £7,078.50. The pleaded defence is that ASE agreed to cancel the invoices as a result of the meeting of 9 September 2013 in order to obtain further and more lucrative work. I do not accept ASE’s case that it agreed to or that it did cancel all of its invoices on a permanent basis as against Motorline at this meeting or – if it is alleged – that Mr McConomy was asked to or did agree to this. I am satisfied that all that was agreed was that the first 50% invoice would be credited for the time being and until such time as the revised report was accepted and the claim included by Carley in the relevant return, at which point it was envisaged that there would be a discussion about re-issuing the invoice.

However that never happened and, instead, it appears that both the initial 50% invoice and the subsequent (un-invoiced) 50% remainder were simply written off by default, rather than through any active process of consideration and discussion with Mr McConomy and then with GGT having been undertaken. In the circumstances I am satisfied that there was a breach of §7 of the SLA. When deciding whether or not WLT has suffered a genuine loss I must decide whether or not Mr McConomy would have been prepared to write both off had he been asked to do so on behalf of WLT. ASE argues that the answer is “yes”, both because of the surrounding circumstances (i.e. the potential for further lucrative work), the way in which Mr McConomy responded to other requests, and the way in which he responded to the request of 20 October 2014.

In my view the answer to this question depends entirely on the date when one is considering the notional request. I am satisfied that if the question had been asked at any time up to the termination letters of 19 December 2014 the answer would probably have been “yes”. After that the answer would have been “no”. That is because after this date Mr McConomy no longer had any incentive to agree retrospective discounts simply to keep the client happy with ASE or to maintain a good relationship with ASE, whereas before he would have had and would, in the same way as I have found with the previous cases, have been prepared to do so. Thus the question is at what date this hypothetical question should be asked. In my view, in circumstances where ASE has been unable to produce any acceptable evidence as to whether and if so when it took a decision permanently to write off the invoice it had issued and not to issue an invoice for a further 50%, and where I am satisfied that this is because no positive decision was ever taken and it simply slipped through the net internally, I am not satisfied that it should be assumed against WLT that this question should be answered on the basis that a request for consent would have been made at a time prior to 19 December 2014, when in fact no such request was made at that time. In the circumstances I am satisfied that WLT has established that it has suffered a genuine loss here in the sum claimed of £7,078.50.

However on the evidence it also follows that there is no basis for holding Mike Jones personally responsible for this loss, in circumstances where he clearly played no part whatsoever in the events in question.

October 2014 – the request to issue credit notes and re-issue invoices

The defendants’ pleaded case [¶24.1] is that what occurred in October 2014 amounted to waiver of any breaches (if contrary to its primary case there were any) and/or an affirmation of the SLA.

On the basis of the conclusions I have already arrived at this argument must be considered in the light that there were breaches of §7 but no resultant loss in the cases of Border, OMC, Magna and HPL and a breach of §7 with a modest resultant loss in the case of GGT.

The factual background is that on 7 October 2014 Ms Heap asked Mr McConomy for a list of open invoices to allow her to undertake a reconciliation. There had been two similar processes in April and in June 2014, as a result of which Mr Rossiter had asked Mr McConomy to issue credit notes and revised invoices, but previously Mr McConomy had simply not responded to these requests. On this occasion however he provided a list on 17 October, which totalled £271,769.89 plus VAT. There followed some internal correspondence between Ms Heap and Mr Rossiter resulting in Ms Heap sending to Mr McConomy, under cover of her email of 20 October, a schedule of invoices showing that ASE believed that only £173,586.08 was due. This included substantial discounts in relation to the 5 specific disputed cases referred to above where the reason given in the email was that they were “not in line with what we’ve invoiced out”, which was expanded on in the schedule that: (i) “never invoiced client” as regards GGT; and (ii) “wrong amount” as regards the other 4. She asked Mr McConomy either to “revise the … invoices to agree with our figures [or] discuss the differences with Pete [Rossiter]”.

Despite this lack of detail, and without taking any steps to discuss the differences with Mr Rossiter or anyone else, Mr McConomy replied just over an hour later saying “I can not say I agree with the discounts offered but I will send you revised invoices later today anyhow”. Later that day he duly emailed revised invoices “to match the ASE schedule” with credit notes for GGT and Border. The revised invoices still bore the same date as the original invoices with the same 60 day payment terms. There was however no payment of these reduced invoices until after the termination letter of 19 December 2014, discussed in more detail below, and no response from ASE querying the basis on which these revised invoices were being sent.

There is an issue as to the legal effect of this. In his witness statement Mr McConomy stated [¶178-9 WS1] that he had revised the invoices in order to obtain some payment, and that he believed that he was entitled to revisit the reductions once he had been able to discuss them with Mike Jones at the meeting which had by then already been arranged for 13 November 2014 (see below). However in cross-examination Mr McConomy admitted that as far as he was concerned he was “writing off” the difference between the original and the revised invoices.

Of course it is trite law that Mr McConomy’s uncommunicated intentions are irrelevant to the true issue, which is the objective analysis of these exchanges, as are the views of the recipients of his communications. Thus, although there was an exchange of emails between Ms Heap and Mr Rossiter following receipt of Mr McConomy’s first email of 20 October, whatever that exchange may or may not have signified was their belief as to the effect of what he was doing is irrelevant, not least because it was never communicated back to him anyway.

In their opening skeleton argument the claimants submitted [¶58] that: (a) Mr McConomy had made it clear that WLT had not agreed the discounts; (b) the submission of revised invoices was as consistent with a simple desire to be paid the reduced amount as a part payment on account as with a waiver; (c) even if WLT could be regarded as having promised to accept payment of the revised invoices, there was no consideration provided by WLT for such a promise, referring to the rule approved by the House of Lords in Foakes v Beer (1884) 9 App. Cas. 605 (Footnote: ²).

I do not accept the submission that what Mr McConomy said and did on 20 October 2014 was not sufficiently clear to amount to a clear statement that WLT was giving up its right to payment of the difference between the original and revised invoices. It seems to me that the correspondence can only be read as WLT giving up its right, even if reluctantly, to payment under the original invoices. If WLT had wanted to reserve its right to seek payment of the balance, it would have had to make it sufficiently clear that not only did it not “agree with the discounts” but also that it was only submitting the revised invoices to obtain payment of the amounts said to be due by ASE pending further discussion and agreement on the remainder.

However I do agree with WLT that ASE is unable to rely on the submission of the revised invoices and credit notes as amounting to a contract under which WLT agreed to accept payment of the lesser amounts in consideration of ASE’s promise to pay those lesser amounts. Whilst the rule in Foakes v Beer does not apply where the party accepting the promise of part payment receives consideration in the form of a practical benefit in addition to part payment (see MWB v Rock Advertising [2016] EWCA Civ 553, referred to above and considered in this context in Chitty at 4-119A), here there was no practical benefit promised to or conferred by ASE on WLT in accepting the offer of a lesser amount. Nor is this a case where it can be said that as at 20 October 2014 there was a crystallised dispute as to what was due under the SLA to WLT as regards these invoices, and that ASE’s revised schedule represented an offer to settle that dispute which was accepted by WLT thus leading to a compromise. (Even if that was not so, an agreement to pay the amount admitted by the debtor cannot amount to consideration for the creditor writing off the full amount claimed: Chitty at 4-120.)

I have considered whether or not the circumstances described above could give rise to some form of permanent equitable forbearance as discussed in Chitty at 4-130 onwards. The difficulty for ASE is that normally this only suspends the enforcement of strict contractual rights, as opposed to extinguishing them. Although it is suggested that exceptionally rights might be extinguished where it would be sufficiently inequitable to allow them to be revived, there is no basis for the application of this exceptional equity in this case, where ASE did not even take any steps to pay the revised invoices prior to the termination of the SLA, and where there is no other basis for a suggestion that it would otherwise be inequitable to allow WLT to revive its original invoices. For essentially the same reasons there is no basis for a permanent promissory estoppel (Footnote: ³) – even if it could be said that there was a sufficiently clear and unambiguous representation by WLT that it would not pursue its original invoices ASE did not act in any way to its detriment in reliance upon such a promise. Furthermore an argument to the same effect based on waiver (Footnote: ⁴) runs into the same difficulties. This is not a case of ASE, accepting that WLT was entitled to invoice the full amount, requesting WLT to invoice the lesser amount. Even if it was, or even if there was a waiver by estoppel, since ASE never tendered payment of the lesser amount prior to WLT’s termination of the SLA and commencement of proceedings seeking the full amount, it cannot say either that WLT should be held to any such waiver in these proceedings or that it acted to its detriment such that it would be inequitable to allow WLT to resile from the waiver.

I do however accept that ASE is entitled to say that what happened amounted to a non-permanently binding forbearance, estoppel or waiver. In short, it is apparent that WLT was communicating a willingness, albeit reluctantly, not to press for payment of the difference between what it was claiming and what ASE was prepared to pay, at least unless and until it notified ASE that its position had changed. In the circumstances, it would not be open to WLT to seek to treat ASE as being in breach of contract in not paying the difference unless and until it had given reasonable notice of its change of position and ASE had failed to accept that WLT was entitled to payment of the balance. This brings me on to consider the subsequent events of November and December 2014, to which I now turn.

November – December 2014: the meeting of 13 November 2014 and subsequent events leading up to the termination notices

In his written evidence [¶18 WS] Mr Sanchez said that in November 2014 (in his oral evidence he said that it was in early November) he spoke by telephone with Mr McConomy, who was complaining about ASE’s treatment of discounts to its clients, in particular Border Cars, and was particularly upset that Trevor Jones had been involved. Mr Sanchez said that he recommended that Mr McConomy raise the matter with Mike Jones. I accept that this discussion did indicate some degree of hardening of Mr McConomy’s previously emollient approach, but no more than that. At around the same time Mr McConomy had emailed Mr Howles asking for details of ASE’s invoices from July 2014 to ensure that WLT’s invoices matched ASE’s invoices and had duly issued new invoices matching the schedule provided. As Mr Maynard-Connor submits, that shows, at least implicitly, that Mr McConomy was prepared to accept that there may have been non-standard terms agreed, about which he had not been consulted in advance and was ignorant, but which he was prepared to accept for invoicing purposes without reserving the right to claim the shortfall on the basis that to do so was a breach of the SLA.

By this time however the meeting had been scheduled to take place between Mr McConomy and Mike Jones on 13 November 2014, which had been arranged between Mr McConomy and Mr Howles via an exchange of emails on 15 October 2014. The initial impetus for the meeting appears to have been Mr McConomy’s suggestion of a revised pricing structure for capital allowance services to meet competition from others. Although Mr McConomy said [¶221 WS1] that it was intended to be and was held as a board meeting of WLT, there is no evidence that it was arranged or held on that specific formal basis, and insofar as relevant I do not consider that he is correct about that.

In terms of contemporaneous documentation as to what was discussed at the meeting, there is an email from Mr McConomy to Mike Jones sent the following day as well as what Mr McConomy says was a contemporaneous note made by him. The email is not of direct relevance, since it concerns Mr McConomy’s proposal to divest himself of the majority of the capital allowance services work by training up a junior accountant to be employed by ASE to undertake the report writing role on the basis of a re-adjustment of the fee percentage split from 55% / 45% to 20% / 80%. It is, however, of some relevance in that it provides some basis for demonstrating the accuracy of the note since the latter, at point 4, records Mr McConomy’s intention to “move away from business in due course so need to think about resourcing will consider at year end”, and the former refers to this as being something which was discussed at the meeting. The real significance of the note is in what is recorded as points 1 and 2, which state (Footnote: ⁵) as follows.

“(1)

No agreement on fee reductions and what is fee properly owed to WLT. Mike Jones considers 55% of agreed fee, Mr McConomy 55% of fee agreed with WLT approval. Mike Jones to look at discounting though and improve process as agreed retrospective write offs are inappropriate.

(2)

Mike Jones to speak to accounts regarding payment for reduced fees to match ASE expectations.”

Thus point 1 is directly relevant because, if accurate, it shows that the question of fee reductions was discussed and that: (i) there was an unresolved dispute about whether or not ASE was entitled to discount the fee to what it had agreed with the client, even if agreed without Mr McConomy’s approval; (ii) Mike Jones was nonetheless willing to take action to improve the process for agreeing discounts, in particular retrospective write offs. Point 2 is also directly relevant because, if accurate, it shows that the question of outstanding fees was discussed and, specifically, that Mike Jones would raise with Mr Sanchez payment of the discounted invoices.

Mr Maynard-Connor took issue with whether or not the note was a reliable contemporaneous note. I have no doubt that it is broadly accurate. Whilst I accept that Mr McConomy’s evidence initially was a little confused as to whether the note was made in the meeting itself or immediately afterwards, subsequently he was clear that it was the latter, and that seems to me to be entirely consistent with the style and content of the note. Whilst Mr McConomy also frankly accepted that since it was written by him for his purposes and not for circulation or agreement, it did contain his slant on things, nonetheless I have no doubt that it accurately recorded the essential gist. It was - properly - not suggested to Mr McConomy that the note was a retrospectively produced reconstruction which he was dishonestly passing off as contemporaneous, and I have no doubt that it was not.

The tenor of the note is also consistent in my view with: (a) the evidence of Mr Sanchez as referred to in [128] above; (b) the evidence of Mr McConomy and Mr Howles and the 10 October 2014 email from Mr Lwin – see [77] above – to the effect that Mr McConomy had become increasingly annoyed about what he had come to discover about the Border Cars saga; (c) the subsequent emails of 19 and 30 November 2014 in relation to payment of invoices, referred to below, which indicate that Mr McConomy had moved away from his previous relaxed approach to payment; (c) what Mike Jones is likely to have said, given that it clearly was his view that ASE was the ultimate arbiter of what fee it should agree, and that WLT would just have to accept it.

It is true that the note does not specifically mention Border. However it does refer to there being no agreement as to “what is fee properly owed to WLT” and I have no doubt that this, read in context, is a reference to the disagreement about whether or not WLT was bound by the reduction given to Border Cars and other clients if agreed without Mr McConomy’s consent. I also have no doubt that the case of Border was raised at the meeting as the starting point for the discussion about fee reductions, as is consistent with the evidence of Mr McConomy, Mr Howles, Mike Jones and Mr Sanchez to the effect that this was what was particularly vexing Mr McConomy. I accept that Mike Jones would not have made specific reference to the fact that as well as the promise in relation to capital allowance services referrals Border had also agreed to give ASE audit work and reconstruction work as part of the consideration for the fee reduction. However I do not accept, insofar as it is alleged, either that he was asked about and lied about this, or that Mike Jones deliberately decided not to inform Mr McConomy because he wanted to conceal this information from him. Whilst I accept that Mr McConomy did not know the specific details at this point in time, I am satisfied that he was aware in general terms from the June 2014 discussions and emails that part of the agreement involved the obtaining of audit work. He did not ask for more details, nor did he raise the point as a contentious issue, and Mike Jones would not have seen any particular need to raise it of his own volition.

In relation to the other specific cases I am satisfied that Mr McConomy would have complained in general terms that ASE’s accounts team were expecting WLT to discount a number of invoices to reflect discounts agreed by ASE without his consent, but that there was no reference to the detail of the individual cases.

In my judgment the position reached by 14 November 2014 therefore was as follows:

Importantly, in my view, Mr McConomy did not make it clear at the meeting, or indeed subsequently, that unless ASE backed down in relation to the fee discounting issue or unless it paid the re-issued invoices in accordance with the SLA and thus without further delay WLT would regard this conduct as so serious in itself as to justify termination of the SLA without further warning. I am satisfied that it was not Mr McConomy’s style to be confrontational in such meetings, preferring instead to be constructive where possible, and that at this time he perceived the most realistic solution to be some form of consensual disengagement, along the lines of his suggestion in the email sent the following day. It is therefore entirely plausible in my view that Mike Jones was lulled into a false sense of security following this meeting, considering - correctly - that Mr McConomy would far prefer to seek to resolve matters by negotiation rather than to invoke WLT’s strict legal rights under the SLA or Mr McConomy’s strict legal rights under the shareholders agreement.

It is Mr McConomy’s evidence, supported by Mr Howles, that he became increasingly suspicious about the reasons for the Border reduction and that sometime in early December 2014 he finally persuaded Mr Howles to admit that part of the reason why ASE had agreed to the reduction to Border was to secure the audit and reconstruction work.

Mr McConomy’s evidence was that this was really the final straw. He said [¶246 WS1] that he considered that he had been deliberately misled by Mike Jones and ASE in order to gain a pecuniary advantage and that the contractual arrangements had been made deliberately unworkable, so that termination was unavoidable.

Mr Maynard-Connor submitted that the court should not accept this evidence. He submitted that it was inconsistent with the initial correspondence in relation to Border where, as I have said, Mr McConomy was clearly made aware of, and did not object to, the 20% payment being written off to secure further audit work. He also noted that Mr Howles’ explanation in his witness statement [¶147-148] that he was forced to admit this because of the failure to obtain any referral work from Border was plainly untrue, since by then the referral from Mathers had already come through and generated a tidy fee income, as both he and Mr McConomy must have known. He also noted that there was no reference to this in the termination letters. Mr McConomy does not contend that he raised this particular issue with Mike Jones or anyone else in a senior position within ASE at any time before 19 December 2014.

I am not satisfied that I can accept Mr McConomy’s account, supported by Mr Howles, either that Mr McConomy had in fact been deliberately misled in relation to the reasons for the discount given to Border, or that this was the catalyst or the final straw for his decision. I am prepared to accept that there was some conversation between the two men around this time in which Mr Howles confirmed that the agreement with Border had involved Border agreeing to appoint ASE to undertake audit work and reconstruction work, but that can scarcely have come as a great surprise to Mr McConomy given his knowledge that the audit work at least was part of the initial proposal in June 2014. It seems to me that this explanation seeks to explain and to justify the decision by attributing it to a recent discovery of what Mr McConomy now seeks to portray as concealment by ASE, and I do not accept it. Instead in my view the decision was made on the basis of a number of cumulative factors. The first was that Mr McConomy had become increasingly irritated over that autumn with what he had come to view as the over-bearing attitude of ASE in relation to the operation of the relationship, in particular the failure by Mike Jones and Robert Jones to rein in their father Trevor Jones and to address the question of client discounts in a professional manner in their dealings with Border. He was annoyed, and justifiably so, at ASE’s failure to ensure that he was kept informed of proposals for non-standard terms, as he had been when Matt Hodgson was still in position. To this was added his concern that an increasing number of senior personnel within ASE from Mike Jones down seemed to regard him as a “Trojan horse” due to his remaining in contact with competing departed employees. He was thoroughly aggrieved that despite agreeing to the discounts to obtain payment of the reduced invoices Mr Sanchez had still delayed in paying them in full, and had failed even to have the courtesy to call him. The negotiations regarding his proposal for exiting WLT were not being progressed by ASE with any particular urgency. He no doubt felt the need to bring matters to a head, so that he could make progress with his own plans. Finally, it is also apparent from subsequent correspondence that he had obtained legal advice before sending the termination letters and, doubtless, that included advice as to the benefits of termination under the SLA and the shareholders agreement as opposed to a negotiation under which he ceded control of the WLT business.

Dealing with the question of payment, it is common ground that ASE did not, following the meeting, pay all of the outstanding invoices without further delay. The evidence is that:

Despite this, however, on 14 November 2014 Mr Rossiter had emailed Mr McConomy requesting him to re-issue 5 invoices where those issued were said to be incorrect, and as late as 16 December 2014 that is precisely what Mr McConomy did.

Furthermore, there was continued discussion about Mr McConomy’s proposal that the capital allowance work should be moved in house. The emails of 18 November 2014 show that it was due to be discussed at a professional services standards board meeting on 8 December 2014. The redacted minutes of that meeting show that it was discussed and that Mr Lwin was tasked with discussing this further with Mr McConomy, although there is no evidence that he did so prior to 19 December 2014.

More generally, business continued as normal. Thus Mr McConomy continued to liaise with Mr Howles and others in relation to the ongoing provision of capital allowance services, and to render further invoices under the SLA. Indeed one of the invoices was for £17,864.42 in relation to the Mathers contract. There was also ongoing discussion between himself and Ms Heap with a view to improving the invoicing process and addressing Mr McConomy’s complaint that WLT was invoicing in accordance with what it believed was the correct position, only to discover that the client had been invoiced on a different basis.

Was WLT entitled to terminate the SLA for repudiatory breach on 19 December 2014?

There are two separate issues to address here. The first is whether grounds existed to justify termination, and if so whether or not WLT had nonetheless affirmed the SLA and thus disentitled itself from terminating the SLA for breach. The second is whether or not as a matter of the proper construction of the shareholders agreement Mr McConomy was entitled to write on behalf of WLT exercising the right to terminate the SLA, if grounds existed to do so, without the prior consent of ASE as 49% shareholder on the basis that termination of the SLA was a shareholder reserved matter under Schedule 2.

Did grounds exist to justify termination and if so had WLT nonetheless affirmed the SLA?

The termination notice gave the following reasons for termination:

The question is whether or not WLT was entitled to terminate the SLA for repudiatory breach, because there was no provision for termination for material breach in the SLA, as there was in the shareholders agreement.

The legal principles in relation to termination for repudiatory breach and affirmation are set out and discussed in detail in chapter 24 of Chitty on Contracts (32^nd edition) (Footnote: ⁶).

In this case the breaches in question are breaches of the obligation in §7.2 only to agree non-standard terms in advance (Footnote: ⁷), and the obligation in §5.2 and §13 to pay WLT’s invoices in accordance with the contract payment terms. It is clear that these are not conditions but intermediate terms, so that the question is whether or not the breaches are sufficiently serious to entitle WLT to treat itself as discharged: Chitty 24-041. This is a fact-sensitive enquiry which involves a multi-factoral assessment: see Valilas v Januzaj [2014] EWCA Civ 436 referred to in that paragraph. The question is whether or not the breaches have deprived WLT of “substantially the whole benefit” which it was intended by the contract it should receive. The court should have regard to the cumulative effect of the breaches which have taken place (fn. 233) and to the reasonably foreseeable as well as to the actual consequences of the breach as at the date of the termination (fn. 234).

In this case there is also the separate question as to whether or not it was open to WLT to treat ASE as being in repudiatory breach where – as I have found – by sending the credit notes and re-issued invoices on 20 October 2014 it had waived – at least temporarily – ASE’s breach in not paying them.

Affirmation of the contract, as contrasted with acceptance of breach as terminating the contract, is discussed at 24-002 onwards of Chitty. Mr Harper drew my attention to the following points: (a) the innocent party is allowed a reasonable time to make up his mind what to do: par 24-002; (b) the innocent party must have knowledge of the facts giving rise to the breach and his legal right to choose between the alternative options: par 24-003; (c) if an implied affirmation is relied upon, it must be unequivocal: par 24-003; (d) the innocent party does not lose his right merely by calling on the other to reconsider his position and recognise his obligation: par 24-003.

In WLT’s favour, it may be said that as at 19 December 2014 it was faced with ASE being in breach as regards agreeing reductions with clients without its advance consent, in breach as regards non-payment of the undisputed revised invoices, and also making it clear by its conduct from 13 November 2014 onwards that it was not willing to change its position, since ASE was not prepared to accept that it was not entitled to agree reductions binding on WLT without its consent, or that it was obliged to pay WLT within 60 days of invoice regardless of whether or not it had been paid by its client, and regardless of whether or not it was inconvenient for its cashflow to do so, and regardless of whether or not there was the prospect of an immediate dividend being paid of its 49% share of WLT’s net profits.

As against WLT, as regards the 5 individual cases the true position, as I have found, was that it could only genuinely say that it had suffered loss as a result in one of those cases, and in a relatively modest amount. Furthermore, and more significantly in context, it had by its conduct intimated that it was prepared to accept payment of the reduced revised amounts, and had not made it clear to ASE that unless payment was made of those revised invoices by a specified date it would treat itself as entitled to claim the full amount or to treat that further failure as repudiatory. Although Mike Jones had not accepted Mr McConomy’s position as regards the effect of agreeing discounts without consent, equally Mr McConomy had not said that unless ASE did so by a specified date it would regard that as fatally undermining the SLA going forwards. In any event, Mike Jones had agreed to investigate ways of seeking to address this as a practical problem going forwards, and there was nothing to indicate that this was simply an empty promise. The relationship was otherwise proceeding reasonably smoothly – at least outwardly – and the parties were in the process of seeking to agree an amicable variation to the relationship which – again at least outwardly – would provide a mechanism for resolving the disagreements between them. Mr McConomy had made it clear that he was willing to divest his interest in WLT, either wholly or substantially, and had not said that unless agreement could be reached on this by a specified date he would treat all his options, including the “nuclear” option of termination for repudiatory breach, as remaining fully open to him.

WLT can argue with some justification that there had been prolonged, deliberate and non-justified non-payment of substantial invoiced amounts. However, as Mr McConomy frankly acknowledged, WLT had very little in the way of outgoings and thus was cash rich and in no urgent need of payment. He had made that plain to ASE over the duration of the SLA, and had never suggested even in November or December 2014 that the non-payment was causing WLT immediate financial difficulties. The economic reality, that ASE was entitled to 49% of the profits made from these activities, did not justify non-payment, but cannot be ignored as part of the context, in circumstances where there had undoubtedly been both some delay in producing the relevant accounts to enable dividend to be paid and a prior suggestion by Mr McConomy that dividend could be set off against invoices otherwise payable. Although Mr McConomy had been chasing payment rather more purposefully since 20 October 2014 and although Mr Sanchez had not reverted to him, WLT had not - as I have said - made payment of the essence or suggested, as he attempted to do in the termination letter, that the non-payment raised concerns as to ASE’s solvency – a suggestion which I regard frankly as fanciful, as I have no doubt Mr McConomy must have appreciated at the time. Mike Jones had promised to seek to address payment at the meeting of 13 November 2014, and there was no basis as at 19 December 2014 for Mr McConomy to conclude that this was pure obfuscation by him. All of these are powerful considerations against non-payment of invoices by itself amounting to repudiation.

As regards the breaches in agreeing non-standard terms without WLT’s prior consent it is also material in my view that it was open to WLT simply to continue to perform the SLA and to sue ASE for the difference between the standard fee and its fee based on non-standard terms agreed without its consent. There was no harm to WLT, other than temporary short term financial harm, as regards the non-payment, which as I have said was of no great significance to WLT given its financial circumstances. It seems to me that the true impact of ASE’s stance going forwards could only realistically be assessed in the context of what would happen in the future, which would depend on whether things did change on the ground going forwards as had been discussed at the meeting of 13 November 2014. Nothing had happened from then until 19 December 2014 which could have justified Mr McConomy in concluding that Mike Jones’ assurances were empty promises – there was for example no discovery by him of another occasion occurring since 13 November 2014 where a retrospective reduction had been agreed without reference to him. In their post draft judgment submissions Mr Harper and Mr Reay referred to an email from Mr Howles to Mr McConomy sent on 19 December 2014, in which reference was made to a reduction of a fee for a client Heritage from 5% to 4%. However, as Mr Maynard-Connor said in his responsive submissions, this client and this complaint did not feature at all in the case, and there is no evidence as to the circumstances in which or the reasons why the reduction was made or whether it had already been discussed or even agreed with Mr McConomy. In short, I am not satisfied that it is open to WLT now to suggest for the first time that this was something which featured or might, on an objective analysis, have featured in the decision to terminate which was actuated on the same day as, it appears coincidentally - this email was sent by Mr Howles.

I do accept that the seriousness of these breaches must be considered in the context of the overall relationship and mutual obligations of good faith imposed by the contracts. As I have said the SLA itself contained an express good faith obligation. Moreover ASE in its capacity as shareholder under and party to the shareholders agreement had an express obligation to promote WLT’s best interests [§3.1(a)] and to conduct itself in relation to transactions with WLT in good faith [§20.2(a)]. It appears to me to be clear from a proper construction of §20.2(a) in the context of the shareholders agreement as a whole, which expressly referred to the SLA in the definitions section, that this obligation extended to ASE’s conduct under the SLA.

The issue as to what is meant by an express contractual obligation to act in good faith was considered by the Court of Appeal in Mid-Essex Hospital Services v Compass Group [2013] EWCA Civ 200. Jackson LJ, referring to previous authorities, concluded that the content of a duty of good faith is heavily conditioned by its context. He referred to CPC Group v Qatari Diar Real Estate Investment Co [2010] EWHC 1535 (Ch), where there was an obligation to act in utmost good faith in the context of a joint venture acquisition and development project, and where Vos J held that whilst this did not require the parties to subordinate their own interests, it did oblige them “to adhere to the spirit of the contract … and to observe reasonable commercial standards of fair dealing, to be faithful to the agreed common purpose and to act consistently with the justified expectations of the parties” [246]. He also said that whilst he did not need to decide whether this obligation could only be broken if a party had acted in bad faith, referring to an earlier observation of Lord Scott in Manifest Shipping Co v. Uni-Polaris Shipping Co [2003] 1 AC 469, he also observed that it might be hard to understand how, without bad faith, there could be a breach of a "duty of good faith, utmost or otherwise".

In the context of this case it seems to me that the obligation is broadly of a similar nature. The question must be answered by the application of an objective test. In other words, ASE’s belief as to whether or not it was acting in good faith in relation to WLT is irrelevant; what is relevant is whether or not in fact ASE’s conduct was, judged objectively, in good faith.

In my judgment ASE’s conduct before, during and after the meeting on 13 November 2014 cannot sensibly be described as a breach of its duty of good faith. Mike Jones was asserting his belief as to what the contract required and entitled ASE to do, but if he was wrong about that he was prepared to discuss matters and seek to improve the process going forwards. There was no breach of duty of good faith in relation to the non-payment of invoices which was, as I have said, essentially the typical response one might expect a finance department to adopt to a creditor who was remarkably relaxed about pushing for prompt payment

Taking all relevant factors into account, in my judgment it cannot be said that as at 19 December 2014 the individual or cumulative impact of the breaches was such that they were properly to be regarded as repudiatory and thus justifying WLT in terminating the SLA.

In the circumstances I do not need to decide the question of affirmation. If I had needed to do so, I would not have concluded that WLT had affirmed the contract. As I have said it is apparent that on 20 October 2014 WLT was conveying a willingness to write off the balance as regards the invoices in question, albeit making it clear that it was not very happy about doing so. However, by early November 2014 Mr McConomy was also making it clear to Mr Sanchez that he was particularly unhappy about Border Cars and the involvement of Trevor Jones, and it was left that this should be raised with Mike Jones. There was the opportunity to do so on 13 November 2014, and I have found that the matters in issue were indeed raised at that meeting, at which Mr McConomy made it clear that WLT was not willing to accept non-payment of the reduced invoices or a situation where ASE continued to impose non-standard terms including retrospective reductions on WLT going forwards. The correspondence of 19 and 30 November 2014 made it clear that WLT was actively chasing payment, but without success or even the courtesy of a response from Mr Sanchez, and there were no active steps being taken towards a consensual resolution of the impasse via the negotiated outcome broached at the 13 November 2014 meeting.

Thus if I had found that ASE was in repudiatory breach as at 19 December 2014 I would not, by reference to the principles to which I was referred by Mr Harper, have concluded that WLT had unequivocally elected to affirm the contract.

As a matter of the proper construction of the SA was WLT entitled to terminate the SLA without the prior consent of ASE as 49% shareholder on the basis that termination was a shareholder reserved matter under Schedule 2

The question is whether or not on a true construction of the shareholders agreement the termination of the SLA was a “shareholder reserved matter”. That raises the following separate but connected issues:

The most recent authoritative guidance from the Supreme Court as to the approach to the construction of contracts is to be found in Arnold v. Britton [2015] UKSC 36, in particular in the speeches of Lord Neuberger PSC (Lords Sumption and Hughes JJSC agreeing) at [14-22] and of Lord Hodge JSC at [76-77], to which I have been referred and which I endeavour to apply, in particular the cautionary words of Lord Neuberger against invoking commercial common sense to undervalue the language used [17], against searching for or constructing drafting infelicities to facilitate a departure from the natural meaning of the language used [18], and against rejecting the natural meaning simply because it appears very imprudent [20].

By reference to the specified shareholder reserved matters in Schedule 2 relied upon by ASE, and by reference to the definition of “the business” as being “the provision of capital allowances tax advice”, in my view both clause (m), referring to “the cessation of any business operation of WLT” (emphasis added) and clause (q), referring to “a [in context “any”] material change in the nature of WLT’s business or the way in which it is carried on” are sufficiently wide to embrace the termination of the SLA. Whilst it is true that the shareholders agreement does not provide that the only vehicle for the capital allowance services to be undertaken by WLT is the SLA with ASE, it is the only specific vehicle referred to in the shareholders agreement and there was, as I have said, a specific minimal referral volume obligation undertaken by ASE at §3.3 of the shareholders agreement.

It is difficult to see therefore how on any plain and literal interpretation of those words the termination of the SLA would not fall within one or other or both of clauses (m) and (q). Although Mr Harper submitted that the SLA was simply a single commercial contract the termination of which could not engage clause (m) or (q), I am unable to agree. In my judgment in the context both of the contracts read as a whole and the nature and extent of the business conducted with ASE as compared with other third parties as at December 2014, the impact of termination of the SLA would plainly in my view have amounted to the cessation of a business operation and a material change in the way the business was carried on.

It follows, in my view, that for the claimants to succeed they must show that on the true construction of the shareholders agreement the absence of specific reference to termination of the SLA being a specified shareholder reserved matter must mean that it is not such a matter, even though it may fall within the scope of clauses (m) and (q).

In that regard Mr Harper stresses that although there are 25 separate specified shareholder reserved matters, there is no separate sub-clause providing that termination of the SLA is a specified shareholder reserved matter, or even referring to the SLA. That is despite the fact that the SLA has its own separate definition in the shareholders agreement and that its termination by reason of breach by ASE is expressly defined as being an event of default.

Applying the guidance in Arnold v Britton, the crucial question of construction in my view is whether or not it is plain that the absence of express reference to termination of the SLA as a specified shareholder reserved matter means that the parties must be taken to have intended that it should not fall within any of the other specified shareholder reserved matters, even though it could, on a plain and literal interpretation of clauses (m) and (q), do so.

The services agreement was entered into on the express basis that Mr McConomy was to be the majority shareholder with ultimate control of the board. The parties must in my view be taken, by reference to the terms of the shareholders agreement itself, to have been aware that if termination of the SLA was a shareholder reserved matter it would enable ASE to prevent Mr McConomy from using his majority control of the board to cause WLT to terminate the SLA, no matter how grievously ASE might breach the SLA, and no matter how much it might be in the best interests of WLT to do so. Mr Harper submits therefore that it could not have been the parties’ intentions, judged objectively, that ASE should have been entitled to a veto on whether or not the SLA should be terminated for breach by ASE. They submit that this construction would also be inconsistent with the express obligation imposed on ASE under §3.1(a) to promote the best interests of WLT and under §3.1(c) to ensure that the business is conducted in its best interests, as well as the good faith obligations in §20.2.

However Mr Maynard-Connor submits that this argument falls foul of the cautionary words of Lord Neuberger PSC in Arnold v Britton. He submits that this is really a thinly disguised attempt to reject the natural meaning of the words used in clauses (m) and (q) by an illegitimate reference to Mr McConomy’s view in light of subsequent events as to what would have been commercially prudent or sensible for him to have agreed at the time. He submits that it might legitimately have been regarded by reasonable parties as appropriate to prevent Mr McConomy from invoking the right to terminate the SLA without ASE’s consent if at that time the referral business with ASE conducted through the medium of the SLA was still a part, or a material part, of WLT’s business, even if that would mean ASE avoiding the consequences of its own breach. It could be argued that this would not prevent WLT taking legal or other steps to compel ASE to comply with its obligations under the SLA, falling short of seeking to terminate it for repudiatory breach. Mr Maynard-Connor also submits that the parties might legitimately have regarded a further appropriate control mechanism as lying within the positive obligations in §3.1(a) and §3.1(c) and the good faith obligations in §20.2 of the shareholders agreement, so that if ASE exercised its effective right of veto contrary to those obligations WLT could by taking legal or other steps compel it to consent to the SLA being terminated for repudiatory breach.

These are powerful arguments, and in the end I am satisfied that they are sufficiently powerful to persuade me that I cannot safely conclude that the omission of termination of the SLA by WLT for breach by ASE as a specifically referred to shareholder reserved matter can only properly be viewed as a mistake, so that clauses (m) and (q) must be read as excluding termination of the SLA by WLT for breach by ASE. I cannot reject as fanciful a conclusion that the parties took a considered decision not to include this specifically because they were satisfied that it fell within the scope of clauses (m) and (q). I do not consider that I can conclude that there is a fundamental and irreconcilable inconsistency between the express reference to termination for breach by ASE of the SLA in the definition section and the literal wording used in clauses (m) and (q). I conclude that applying the principles laid down by the Supreme Court in Arnold v Britton I cannot in effect re-write the clear words of Schedule 2. This is not a case where the principle of construction (as to which see Sir Kim Lewison in The Interpretation of Contracts (6^th edition) at paragraph 7.10 and following) that a contract should not be constructed so as to enable a party to take advantage of its own wrong can apply.

Accordingly, had I needed to, I would have found against WLT on this ground as well.

Was Mr McConomy entitled to terminate the shareholders agreement for breach on 19 December 2014?

I thus need to consider whether or not there was also an event of default by the commission of a material breach of the shareholders agreement which was either incapable of remedy or which was not remedied in accordance with a notice to remedy.

Given the conclusions I have already reached, I can take this reasonably speedily.

As to what is a material beach I was referred by Mr Maynard-Connor to the decision of Christopher Clarke J in Dalkia Utilities Services v Celtech International [2006] EWHC 63, to the effect that the term ‘material breach’ in a written contract is not to be considered to mean a repudiatory breach; otherwise the presence of such a term adds nothing to the innocent party’s rights at common law. Further, in assessing the material quality of a breach:

As to whether a breach is capable of remedy I was referred by Mr Maynard-Connor to the decision of the Supreme Court in Telchadder v Wickland Holdings Ltd [2014] UKSC 57, [2014] 1 WLR 4004 @ ¶¶23-3248. Ordinarily the breach of a positive contractual obligation is capable of remedy, but even a breach of a negative covenant can be remedied. The proper approach to the question of whether or not a breach is capable of remedy, is a practical inquiry, rather than a technical one, as to whether the mischief caused by the breach can be redressed.

In this case I am satisfied that:

Furthermore, it is plain in my view that all of the breaches complained of were remediable. All of the breaches in relation to the unpaid invoices (which would include the disputed claims) related to payment and, hence, were specifically stated to be remediable by 10 business days’ notice. The breaches in relation to the debate about what the SLA required could obviously have been remedied by asking ASE to concede that it would going forwards comply with its obligations under a proper interpretation of the SLA within 15 business days.

Thus I am satisfied that Mr McConomy was not entitled to terminate the shareholders agreement for material breach.

Events subsequent to the letters of termination – ASE’s counterclaim

Given my conclusions as expressed above it is not necessary for me to refer to the subsequent events in more than outline. Mr McConomy has not pleaded a positive case to the effect that, if he was wrong in seeking to terminate the shareholders agreement on 19 December 2014, he was nonetheless not himself, by reason of his subsequent conduct thereafter and his failure to comply with remedial notices served on behalf of ASE as regards those breaches, in material breach of the shareholders agreement, with the result that ASE became entitled to and did serve an effective default notice on him under the shareholders agreement.

In short, the relevant chronology is that upon receipt of the termination notices, and whilst reserving ASE’s position, Mike Jones suggested a meeting which it was agreed should take place in early January 2015. It is clear from subsequent emails that what was discussed at this meeting and a subsequent meeting was the earlier proposal for ASE to take over the capital allowance services in-house, rather than the strict legal position and the termination letters. In early February 2015 Mr McConomy was training ASE staff in capital allowance services in order to facilitate this. Whilst the contemporaneous emails show that over this period both parties were continuing to operate on the basis that the existing arrangement was continuing, nonetheless it is also clear that matters had not been finally resolved.

On 10 March 2015 however ASE’s solicitors wrote a lengthy letter in which they: (a) disputed that Mr McConomy was entitled to terminate the shareholders agreement, addressing a number of matters including the termination letters, advancing the arguments which I have already addressed and substantially accepted above; (b) disputed that WLT was entitled to terminate the SLA, again advancing the arguments which I have already addressed and substantially accepted; (c) demanded that WLT withdraw the notice of termination of the SLA failing which ASE would treat Mr McConomy as being in material breach of the shareholders agreement; (d) required Mr McConomy to provide financial information in relation to WLT failing which ASE would treat him as being in material breach of the shareholders agreement; (d) demanded that Mr McConomy remedy his alleged breach in changing the name of WLT failing which ASE would treat him as being in material breach of the shareholders agreement.

On 24 March 2015 the claimants’ solicitors responded: (a) re-asserting the claimants’ case as regards the alleged breaches of the SLA and the shareholders agreement and declining to withdraw the termination notices; (b) claiming that ASE was indebted to WLT in the sum of £339,360.07 inclusive of statutory interest; (c) disputing the other allegations of breach; (d) proposing ADR via the Institute of Chartered Accountants.

That produced a detailed letter of response from ASE’s solicitors dated 9 April 2015, setting out in some detail ASE’s response to the alleged breaches of the SLA. Finally, by letter dated 17 April 2015, ASE’s solicitors wrote stating that in the circumstances ASE was terminating the shareholders agreement by reason of GM’s default and thus requiring him to sell his shares in WLT to ASE.

Following further correspondence in which both parties stated that they were in the process of issuing proceedings the current claim was issued by the claimants.

In short, having reviewed the relevant events and correspondence I accept ASE’s case that since WLT was not entitled to terminate the SLA for breach by ASE, and since Mr McConomy was not entitled to terminate the shareholders agreement, their respective refusals to withdraw those termination notices and Mr McConomy’s refusal to comply with the shareholders agreement going forwards justified ASE in itself terminating the shareholders agreement and invoking clause 11 of that agreement.

WLT’s monetary claims against ASE under the SLA

I have already addressed the 5 specified disputed claims.

There remains the claim, pleaded in ¶11 of the Particulars of Claim, for the unpaid balance of other invoices raised under the SLA and which were unpaid as at the date of issue. The sum pleaded in the Particulars of Claim was £164,172.71, but it is common ground that a further substantial payment was subsequently made and that the remaining claim is limited to four of the invoices referred to in the relevant schedule to the Particulars of Claim, namely ASE/43, ASE/56, ASE/64 and ASE/67 in the total amount (excluding VAT) of £35,559.13.

ASE accepts that these invoices were rendered and have not been paid. Its pleaded case was that these invoices were disputed and credit notes were expected, although no specific details were given. However details were provided in the witness statement of Mr Sanchez and ASE’s defence in summary, as appears from Mr Maynard-Connor’s closing submissions, is that it was entitled to require WLT to issue credit notes in accordance with its case as to the variation of the SLA. Since I have found that there was no such variation, ASE is not entitled to rely upon that as a defence. However it is still necessary for me to consider the individual claims and, in particular, to decide in the same way as with the five specific disputed claims whether or not Mr McConomy would have agreed the discounts anyway had he been asked to give his consent in advance.

Invoices ASE/43 and 64 relate to a client known as Sherwoods. Mr Sanchez addresses this in his witness statement at ¶50. From this and the disclosed documents it is clear that the original letter of engagement was entered into in February 2014 and provided for a standard 5% fee. The first report was produced and invoiced for on that basis in August 2014. The client queried whether or not it should have to pay the invoice pending HMRC’s determination of the claim, and collection was put on hold pending the resolution of this issue. In the meantime WLT’s invoice ASE/43 had been submitted and re-submitted following a modest (upwards) adjustment requested by Mr Rossiter. A further report was produced and invoiced for in December 2014 on the same basis, and WLT’s invoice ASE/64 was submitted in the same month. After some sporadic correspondence the client made a mis-selling complaint similar to that made by Border in May 2015, and in July 2015 Mr Lwin agreed a reduced total payment down from £43,851.76 to £30,393.39.

Since I have already concluded at [113] above that Mr McConomy would not have been prepared to agree a retrospective discount to keep the client or ASE happy after 19 December 2014, and since there is no suggestion that Mr McConomy was in any way responsible for the alleged mis-selling, if such it was, and since under the terms of the SLA WLT was entitled to payment from ASE regardless of whether ASE was paid, there is no basis for concluding that Mr McConomy would have agreed this retrospective discount at the time and, hence, no basis for not awarding WLT damages in full.

Moreover, there is no suggestion by ASE that it has paid WLT its 55% share of the reduced total payment, so that WLT is entitled to payment of the original invoiced amounts in full.

Invoice ASE/56 relates to a client known as Masters. A flat fee of 4% was agreed with the client in July 2014 and the report was produced and the fee invoiced in October 2014, with WLT issuing its invoice to ASE in November 2014. On 26 November 2014 the client queried the effect on cash flow of the invoicing arrangement. On 3 December 2014 Mr Howles wrote identifying some further capital allowance work for a flat fee of 3%, and suggested that the current invoice be “offset” against the total fee for the project. This was agreed by the client on 15 December 2014 but in January 2015, following a chase by Ms Heap, the client responded seeking a 25% reduction against this invoice, which it appears was finally given in July 2015.

In the absence of any other explanation as to what was meant by “offset”, it seems to me that what was being proposed on 3 December 2015 was not a 25% reduction in the fee for the initial work, but a 25% reduction for further work. It appears that the client may have misunderstood this, and that sometime between January and July 2015 a decision was taken by ASE to accept the client’s understanding and reduce the fee for the initial work by 25%. At that stage Mr McConomy would not have been willing to agree any such discount and, accordingly, I am satisfied that this claim must succeed in full.

Finally, invoice ASE/67 relates to a client known as Sanders. A ratchet fee was agreed with the client in October 2014, and the report was produced and the fee invoiced on that basis in December 2014, with WLT issuing its invoice to ASE on the same basis in the same month. It appears that in January 2015 the client expressed dissatisfaction with the fee and on 29 January 2015 Mr Lwin agreed a revised flat fee of 2%. For the same reasons as given previously there is no basis for considering that Mr McConomy would have been willing to agree a similar reduction at this time, and accordingly this claim must succeed in full.

It follows that WLT succeeds in full on this element of its claim.

WLT’s claim against Mike Jones for breach of director’s duty

Having already considered the claim against Mike Jones in relation to each of the 5 specific disputed claims, it will be apparent that for the reasons I have already given these claims must all fail, on the basis that I am not satisfied that Mike Jones was personally involved in negotiating or agreeing any of the reductions or cancellations in question.

Further, and for the reasons given in relation to Border in particular I am also satisfied that Mike Jones could objectively have been satisfied in good faith that the agreements reached with the client in each case other than GGT were most likely to promote WLT’s success and, in any event, that the agreements were not in substance prejudicial to WLT, so that there was no breach of s.172(1), and nor was there any breach of the “no conflict” rule under s.175(1). I reach the same conclusion as regards substantial prejudice in relation to GGT.

Conclusions

WLT is entitled to damages in the total sum of £42,637.63, comprising £7,078.50 in relation to GGT and £35,559.13 in relation to the other unpaid invoices. Since this is a claim for damages, on which as I understand it VAT is neither chargeable nor charged, there is no need to add VAT to this sum, but I will of course hear argument on the point if needs be. Interest is claimed at what is described (but not defined) in the SLA as “the statutory rate” or under the Senior Courts Act, and again if this is not agreed I will hear submissions on the appropriate rate and period.

Mr McConomy’s claim to be entitled to invoke §11 of the shareholders agreement fails, whereas ASE’s claim to be entitled to invoke §11 succeeds. I will hear argument on the precise relief to which ASE is entitled if necessary.