Taylor Goodchild Ltd v Taylor & Anor

The principles to be applied on an application for summary judgment were conveniently summarised by Lewison J in Easyair v Opal Telecom [2009] EWHC 339 (Ch), approved by the Court of Appeal in AC Ward v Catlin (Five) [2009] EWCA Civ 1098, and set out by Bryan J in The European Union and Anor v TheSyrian Arab Republic [2018] EWHC 1712 (Comm) at [66] as follows:

“(1)

The Court must consider whether the defendant has a realistic, as opposed to a fanciful, prospect of success;

(2)

A realistic claim is one that carries some degree of conviction. This means a claim that is more than merely arguable.

(3)

In reaching its conclusion, the Court must not conduct a ‘mini trial’ …;

(4)

This does not mean that the Court must take at face value and without analysis everything that a party says in its statements before the Court. In some cases it may be clear there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents;

(5)

The Court must take into account not only the evidence actually placed before it but also the evidence that can reasonably be expected to be available at trial;

(6)

The Court should hesitate about making a final decision where reasonable grounds exist for believing that a full investigation into the facts of the case would add to or alter the evidence and so affect the outcome of the case;

(7)

If the application gives rise to a short point of law or construction and the Court is satisfied it has before it all the evidence necessary for its proper determination, it should grasp the nettle and decide it.”

Res judicata is a term that encompasses a number of different legal principles which were described by Lord Sumption in Virgin Atlantic Airways v Zodiac Seats UK Ltd [2013] UKSC 46 at [17]:

“Res judicata is a portmanteau term which is used to describe a number of different legal principles with different juridical origins. As with other such expressions, the label tends to distract attention from the contents of the bottle.

The first principle is that once a cause of action has been held to exist or not to exist, that outcome may not be challenged by either party in subsequent proceedings. This is “cause of action estoppel”. It is properly described as a form of estoppel precluding a party from challenging the same cause of action in subsequent proceedings.

Secondly, there is the principle, which is not easily described as a species of estoppel, that where the claimant succeeded in the first action and does not challenge the outcome, he may not bring a second action on the same cause of action, for example to recover further damages: see Conquer v Boot [1928] 2 KB 336.

Third, there is the doctrine of merger, which treats a cause of action as extinguished once judgment has been given upon it, and the claimant’s sole right as being a right upon the judgment. Although this produces the same effect as the second principle, it is in reality a substantive rule about the legal effect of an English judgment, which is regarded as “of a higher nature” and therefore as superseding the underlying cause of action: see King v Hoare (1844) 13 M & W 494, 504 (Parke B). At common law, it did not apply to foreign judgments, although every other principle of res judicata does. However, a corresponding rule has applied by statute to foreign judgments since 1982: see Civil Jurisdiction and Judgments Act 1982, section 34.

Fourth, there is the principle that even where the cause of action is not the same in the later action as it was in the earlier one, some issue which is necessarily common to both was decided on the earlier occasion and is binding on the parties: Duchess of Kingston’s Case (1776) 20 St Tr 355. “Issue estoppel” was the expression devised to describe this principle by Higgins J in Hoysted v Federal Commissioner of Taxation (1921) 29 CLR 537, 561 and adopted by Diplock LJ in Thodayv Thoday [1964] P 181, 197-198.

Fifth, there is the principle first formulated by Wigram V-C in Henderson v Henderson (1843) 3 Hare 100, 115, which precludes a party from raising in subsequent proceedings matters which were not, but could and should have been raised in the earlier ones.

Finally, there is the more general procedural rule against abusive proceedings, which may be regarded as the policy underlying all of the above principles with the possible exception of the doctrine of merger.”

In relation to Henderson v Henderson, Lord Bingham provided a helpful description in Johnson v Gore Wood & Co [2002] 2 AC 1. He stated, at page 31:

“Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter…The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all.

I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.”

I was also directed to the case of Aldi Stores Ltd v WSP Group Plc [2007] EWCA Civ 1260 (“Aldi”), in which Thomas LJ provided important practical guidance on the application of Henderson v Henderson. Some of the key principles set out in his judgment can be distilled as follows:

In subsequent cases, a failure to comply with the requirement set out in Aldi to raise the possibility of future litigation with the judge seized of the first case has been said to be a primary factor in identifying subsequent litigation as an abuse: see e.g. Gladman Commercial Properties v Fisher Hargreaves Proctor & Ors [2013] EWCA Civ 1466 at [63]-[67].

The court’s powers to order relief in respect of a section 994 petition are set out in section 996 CA:

“(1)

If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.

(2)

Without prejudice to the generality of subsection (1), the court's order may

(a)

regulate the conduct of the company's affairs in the future;

(b)

require the company—

(i)

to refrain from doing or continuing an act complained of, or

(ii)

to do an act that the petitioner has complained it has omitted to do;

(c)

authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct;

(d)

require the company not to make any, or any specified, alterations in its articles without the leave of the court;

(e)

provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly.”

It is commonplace that where a minority shareholder succeeds in alleging that the majority shareholders or directors have breached their duties or fiduciary duties to the company and thereby conducted the affairs of the company in an unfairly prejudicial manner, an order is made for purchase of the minority’s shares by the wrongdoers. In fixing a fair price at which such buy-out should be ordered, the petitioner routinely asks for the price of his minority holding to be determined taking account of the wrongs done to the company by the respondents.

It is also the case that even if the court is not minded to make a buy-out order, but finds unfair prejudice to have been established, it can order damages, compensation or an account of profits to be paid to the company by the respondent shareholders or directors or any third party involved in the wrongdoing.

In these respects, there are a series of cases in which the court has repeatedly emphasised the breadth of section 996 CA and declined to place any limitation on the power to grant relief under it, either as against a director or a third party (provided that they have been joined to the proceedings): see e.g. Re a Company (No. 005287 of1985) [1986] 1 WLR 281 at 284-285; Gamlestaden Fastigheter AB v Baltic PartnersLimited & Ors [2007] UKPC 26 at [27]-[28]; Sikorski v Sikorski & Anor [2012] EWHC 1613 (Ch) at [71]-[81]; and Wootliff v Rushton-Turner & Ors [2016] EWHC 2802 at [27]-[33].

In Apex Global Management v Fi Call & Ors [2013] EWHC 1652 (Ch), Vos J examined the relevant authorities and concluded, at [125]:

“In my judgment, these authorities all speak with one voice. They show that sections 994-6 provide a wide and flexible remedy where the affairs of a company have been conducted in a manner that is unfairly prejudicial to the interests of some or all of its members. A section 994 petition is appropriate where, for whatever reasons, the trust and confidence of the parties to a quasi-partnership has broken down. Relief can be granted to remedy wrongs done to the company, and in such a situation the alleged wrongdoers must be made parties to the petition. Non-members of a company who are alleged to have been responsible for such conduct can be joined as respondents, and, in an appropriate case, such non-members can be made primarily or secondarily liable to buy the petitioners' shares. Artificial limitations should not be introduced to reduce the effective nature of the remedy introduced by sections 994-6.”

If, less frequently, the minority shareholder seeks an order that it be entitled to acquire the shares of the majority in order to address the unfair prejudice perpetrated by the majority, logic would suggest that there could also be an order that the majority pay compensation or account to the company for profits derived from such wrongs, and then the price at which the majority’s shares are then acquired should reflect such restoration or increase in value.

To take a simple example, assume a company in which the shares are held by the majority and minority 60/40 and which is worth £100. If, in breach of duty, the majority expropriate an asset from the company worth £20, and are found thereby to have conducted the affairs of the company in a manner which is unfairly prejudicial to the minority, they could be ordered to sell their shares to the minority. In such a case, they could be ordered to restore the asset to the Company and then their shares would be purchased for £60 by the minority (with no premium payable for control). Depending on the facts (and assuming that the interests of creditors of the Company are not affected), it might also be possible to achieve the same result in practical terms as between the shareholders, by leaving the asset in the hands of the majority and adjusting the value to be paid for the majority’s shares.

These examples assume that the issues of expropriation and remedy are all dealt with at the same time. In that regard, and as a general proposition, I would remark that in many unfair prejudice cases concerning small private companies (which have often been likened to “corporate divorces”), there is an obvious imperative in the interests of the parties and saving costs and court resources, that in fashioning a remedy for unfair prejudice, the court should seek if possible to create a “clean break” between the parties. This generally means that all outstanding disputes between the parties relating to the company should be resolved at the same time and reflected in the order and valuation for the buy-out.

Mr. Harper QC submitted that the DLA Claim should be struck out as a Henderson vHenderson abuse of process because the issue of whether Mr. Taylor’s DLA should be repaid to the Company could and should have been pursued and resolved as part of the Petition. I do not accept that submission.

So far as the question of whether the claim “could” have been raised in the Petition, the simple fact is that the DLA Claim is a claim in debt by the Company against Mr. Taylor, the Company was a nominal respondent to the Petition, and given the deadlock between the directors, the Company could not have raised such a claim itself.

Nor is it obvious to me that Mr. Goodchild could have complained that Mr. Taylor’s personal failure (or inability) to repay his DLA was conduct by Mr. Taylor of the affairs of the Company within the meaning of section 994 CA. As Mr. Goldberg submitted, if the issue was to be raised at all in the unfair prejudice proceedings, the correct approach would have been for Mr. Taylor to cross-petition on the basis that Mr. Goodchild’s refusal to agree to recommend that the Company should pay a higher dividend was unfairly prejudicial to his interests, because it deprived him of the opportunity to have the benefit of a larger debt which he could have set-off against his liability for the DLA.

So far as the question of whether the claim “should” have been raised, it is clear that the issue of whether, and if so, how, the existence of Mr. Taylor’s DLA should be dealt with and factored into the valuation of Mr. Taylor’s shares was squarely identified both in Mr. Poole’s expert report and at the trial of the Petition. In that context, as I have indicated, Mr. Goldberg made it clear that Mr. Goodchild’s view was that if he succeeded in obtaining an order to buy out Mr. Taylor, he considered that the Company would thereafter be at liberty to bring subsequent proceedings to recover the balance on Mr. Taylor’s DLA.

This was therefore not a case in which, in breach of the Aldi guidelines, the possibility of a claim by the Company to repayment of Mr. Taylor’s DLA was not ventilated with the court in the first set of proceedings. Mr. Goodchild appears to have mentioned it, it was then taken up by Mr. Taylor’s counsel who asked Barling J to deal with it in the course of the hearing (which he declined) and it was then addressed in closing submissions. Barling J was therefore well aware of the possibility of a subsequent claim being made by the Company in respect of the DLA.

Although, as Barling J made clear in his judgment, he regarded the possibility of further litigation as undesirable, neither he nor anyone else suggested that such a claim could not subsequently be brought by the Company because it would be an abuse of process. Rather, Barling J concluded, at paragraph 112 of his Judgment,

“I acknowledge that this leaves some matters unresolved between the parties, but that is unavoidable”

(my emphasis)

In so far as it is appropriate to consider whether the Company (or even Mr. Goodchild as its new owner) has behaved in a way that is culpable or improper, it is also clear that Barling J did not think that the fact that the matter had not been raised at an

In light of the above, and given that Barling J’s Judgment and his decision not to factor Mr. Taylor’s DLA into the value which he fixed for the shares in the Company has not been appealed, I do not see how I can conclude that the Company or Mr. Goodchild could and should have brought and pursued a claim for repayment of the DLA as part of the Petition. I therefore do not consider that the Company’s pursuit of the DLA Claim in these proceedings constitutes an abuse of process.

As an alternative to his Henderson v Henderson argument, Mr. Harper QC submitted that the DLA Claim has no realistic prospect of success and so should be summarily dismissed.

The basis for this submission rests on an assertion by Mr. Taylor that he and Mr.

Mr. Harper QC further contended that it was an implied term of this agreement between Mr. Goodchild and Mr. Taylor that if the Company was lawfully able to declare a dividend then it would declare one in the “necessary amount” to reduce or extinguish the amount owing on the directors’ DLAs. Mr. Harper QC further suggested that there was an implicit expectation or understanding that the directors would not cause the Company to call for repayment of the DLAs where it had, for the relevant financial year, sufficient distributable profits from which it could declare a dividend, but had failed to do so without good reason.

Mr. Harper QC further submitted that for the financial year ending 30 November 2016 the Company had distributable profits of £441,449 and, but for the dispute, dividends would have been declared in the normal way to offset the debts due on the directors’ DLAs.

Mr. Harper QC analysed the legal effect of these contentions in three ways. First, he said that as a matter of contract, Mr. Taylor was not obliged to repay his DLA as the Company had the ability to declare dividends and to be repaid in that way; secondly, that in circumstances in which it had not declared a dividend it would be unconscionable for the Company to claim repayment of Mr. Taylor’s DLA such that it is estopped from doing so; and thirdly, even if Mr. Taylor was liable for the DLA, he would have a counterclaim and set off founded on unjust enrichment, because without such a remedy, Mr. Taylor would have provided his services to the Company in the legitimate expectation that he would be remunerated, but would end up having worked for the Company in the years ended November 2016 and November 2017 for free.

In response, Mr. Goldberg submitted that there were a number of difficulties with these arguments. First, he contended that Mr. Taylor had provided no particulars of the circumstances in which the alleged agreement was reached, and that its supposed terms were far too uncertain to be legally binding. He pointed out, for example, that it was not alleged and was unclear how the Company itself would be bound by the agreement between Mr. Taylor and Mr. Goodchild; it was not clear what size of dividend would in any year constitute the “necessary amount”, or how that would be determined; and it was also unclear how any such contractual obligation was said to co-exist with the fiduciary duties owed by the directors to the Company in relation to recommending a dividend. In Mr. Goldberg’s submission, none of the terms contended for by Mr. Harper QC met the stringent tests for certainty of contract or implication of terms.

Mr. Goldberg also submitted that on the facts Mr Taylor would fail to make good his suggestion that the Company could have declared any, or any substantial dividend, or that it had breached any obligation to Mr. Taylor to do so. He referred in this regard to the findings made by Barling J in the Judgment, which included the following,

“58.

In cross-examination, [Mr. Taylor] accepted that he was not willing to sign the accounts, which were in fact overdue, without a dividend declaration at a level that he was happy with. He wanted, he said, a dividend declared which would extinguish his director’s loan account. That, it seems clear, would have required a dividend declaration in the order of £400,000. [Mr. Taylor], as I understand it, accepted that the balance sheet showed shareholders’ funds of only £242,000 at this time.

…

97.

There is a considerable tension between the insistence of [Mr. Taylor] on the declaration of a dividend which would extinguish his loan account of some £230,000 and the fact that only a few weeks earlier he was under the impression that the Company was going bust and had blocked its overdraft facility renewal. I do not consider that there was anything unreasonable in [Mr. Goodchild’s] stance on the declaration of a dividend for 2016. The fact that the £800,000 or £900,000 credit in the directors’ loan accounts when the Company was formed had turned into an approximately £400,000 debit indicates that the directors had been paying themselves more than the company could afford over the whole period. Over the five years or so of the Company’s existence, it appears that the directors’ loan account had decreased by some £1.2 million.”

In my judgment, it is far from clear that Mr. Taylor would be able to succeed either in establishing that a contract existed on the terms alleged, or establishing on the facts that there was a breach of it which would prevent the Company from claiming the sums due under his DLA.

I accept, depending on the facts, a company could be bound by an informal agreement between its two shareholders. Agreements can be legally binding even though not in writing (see e.g. Paul v Constance [1977] 1 W.L.R. 527); in many small private companies, business is frequently conducted on an informal basis; and agreements between shareholders can be binding both upon themselves and the company, even if undocumented: see e.g. Re Duomatic Ltd [1969] 2 Ch 365.

However, for a binding legal agreement there does need to be sufficient certainty of terms and some evidence from which the court can conclude, objectively, that there was a meeting of minds on those terms. The evidence that I have seen to date certainly does not satisfy me that the Company has no realistic prospect of disputing

There are similar problems with Mr. Taylor’s arguments based upon unconscionability and estoppel. The argument that it would be unconscionable for the Company now to seek repayment of the DLA because it failed to declare an earlier dividend appears to me to be founded upon the same premise of a contract binding upon the Company and a failure to act in accordance with it to which I have just referred.

In that regard I also accept Mr. Goldberg’s submission that in light of the findings of Barling J as to the (lack of) available shareholders’ funds and the reasonableness of Mr. Goodchild’s refusal to declare a dividend for 2016, it cannot be said that the Company would have no realistic defence to a claim for breach of the alleged contract in failing to declare a dividend for 2016.

As a point of detail I would also observe that Mr. Harper’s suggestion that the Company had distributable profits of £441,449 for the financial year ending 30 November 2016 appears to have been based upon unaudited draft management accounts for the period from 1 December 2016 to 31 March 2017. Prima facie, however, the relevant accounts for the determination of distributable profits under the CA are the last audited accounts, and even assuming these to be the accounts to 30 November 2016 that Mr. Taylor refused to approve, these showed shareholder funds of only £242,000.

I am also not persuaded that the Company has no defence to an argument based upon unjust enrichment. In the recent case of Jones v Sky Wheels Group [2020] EWHC 1112 (Ch), which raised similar issues to the instant case (albeit in the different context of an application to set aside a statutory demand in bankruptcy), I explained at [49]-[50] the background to the type of arrangements which appear to have existed in this case,

“49.

It is frequently the case in small private companies that persons who are both directors and shareholders are paid only a relatively modest amount of remuneration for their work through the PAYE system. They then enter into an informal agreement or arrangement between themselves to draw sums of money from the company periodically during the year. Those sums are then debited to the directors’ loan accounts in the expectation that at the end of the year the company will be in a position to declare a dividend. The intention is that the resultant debt created by the declaration of dividend (of the company to the shareholders) will be set off against the indebtedness of the directors on their loan accounts. Under such an arrangement, the periodic drawings are not declared as remuneration for the purposes of PAYE and NIC. Instead the directors and shareholders benefit from the more favourable tax treatment accorded to dividend payments.

50.

In light of the manner in which such arrangements are presented to HMRC, in general terms I do not consider that such periodic drawings can simply be re-characterised as remuneration as and when it might suit one of the recipients so to contend. Or at least that cannot be done without acknowledging that the manner in which they had previously been disclosed to HMRC had been incorrect, with all the consequences in terms of the payment of additional tax, interest and penalties that this might entail.”

The argument advanced on behalf of Mr. Taylor in this case appears to be that although the parties deliberately chose to adopt the course of drawing sums from the Company to be debited to their DLAs rather than being paid salary (and incurring liabilities for PAYE and NIC) on a regular basis, if the Company generated insufficient profits or failed to declare a dividend, it would nevertheless be obliged to pay the equivalent of a salary to Mr. Taylor to avoid being unjustly enriched by having received the benefit of his services without payment.

As was the case in Jones v Sky Wheels, I see considerable difficulties in the way of that contention given that, at least on the face of it, Mr. Taylor and Mr. Goodchild freely chose to organise the affairs of the Company on the basis that they would not be employed and paid a regular salary for their work, but would instead rely on the declaration of dividends to receive their share of the profits which they helped their Company to generate. Mr. Taylor does not suggest that this arrangement was a sham. As such I see no obvious reason why the Company could not at least defend a claim in restitution on the basis that it has not been unjustly enriched, because Mr. Taylor and Mr. Goodchild had agreed to render their services to it without receiving any regular salary in return.

Accordingly, I do not consider that this is a case in which summary determination of the DLA Claim in favour of Mr. Taylor is appropriate.

I therefore refuse the application to strike out or for summary judgment on the DLA Claim in favour of Mr. Taylor. The DLA Claim must be allowed to proceed.

Mr. Harper QC submitted that the WIP Claim and the Account of Profits Claim were determined by Barling J as part of the Petition, and are therefore barred by cause of action or issue estoppel. Alternatively, he contended that they could and should have been raised by Mr. Goodchild in the Petition, and that Mr. Goodchild causing the Company to bring the claims now is an abuse of process on Henderson v Henderson grounds. Mr. Goldberg, for the Company, argued that the strict principles of cause of action or issue estoppel arenot engaged in respect of either claim; that the only relevant legal principle to be considered is Henderson v Henderson; and that neither the WIP Claim nor the Account of Profits Claim should be struck out as an abuse of process on that ground.

Although the issue of whether Mr. Taylor acted in breach of duty to the Company was and is a common feature in both cases, that does not mean that the Company’s cause of action in the instant case is the same as the cause of action advanced by Mr. Goodchild in the Petition.

Mr. Goodchild’s cause of action in the Petition was a claim by a shareholder that the affairs of the Company were being conducted in a manner that was unfairly prejudicial to his interests qua shareholder. That is a personal claim to which the Company was a nominal respondent. By contrast, the Company’s claim in these proceedings seeks compensation for loss and an account of profits in respect of breaches of duty owed directly to it. Although section 994 petitions often rely on breaches of fiduciary duty committed by directors as the relevant conduct of the affairs of the company, conduct of the affairs of the company can be unfairly prejudicial to shareholders without being a breach of fiduciary duty by directors (and may not arise from acts of the directors at all). Moreover, not all breaches of fiduciary duty by directors are necessarily unfairly prejudicial to the relevant shareholders. Depending on the facts they might, for example, be prejudicial, but not unfairly so, given the conduct of the petitioner.

As indicated by Lord Sumption in Virgin Atlantic, the effect of issue estoppel is that where an issue is decided in earlier proceedings between the same parties, the decision of the court on that issue then binds those parties in subsequent litigation. I do not understand the concept of issue estoppel operates to prevent a successful party from relying on findings in its favour. The policy underlying issue estoppel is that a party against whom adverse findings were made in one case should not be able to challenge them in subsequent proceedings between the same parties.

As such, there may well be an issue estoppel operating in this case as a result of Barling J’s findings in the Judgment, but if it operates, it would do so to prevent Mr. Taylor from re-litigating the findings against him. It would not prevent the Company from relying on Barling J’s findings in these proceedings against Mr. Taylor.

I therefore consider that it is clear that neither cause of action estoppel nor issue estoppel apply to prevent the Company bringing the WIP Claim or the Account of Profits Claim.

As indicated in the authorities to which I have referred above, in considering whether the Henderson v Henderson principle operates in this case, I am required by the authorities to undertake a broad, merits-based assessment, taking account of the public and private interests involved and all of the facts of the case.

The first relevant factor in my assessment is that it was perfectly possible, in my judgment, for Mr. Goodchild to seek the relief now sought through the WIP Claim and the Account of Profits Claim as part of the Petition. Mr. Goldberg submitted that the Company was only a nominal respondent to the earlier proceedings, that it was deadlocked at the time, and that STL was not a respondent to the Petition. Those matters are all true, and relevant to the question of cause of action estoppel, but I do not think that they carry any force in relation to the broader Henderson v Henderson analysis. That is because the authorities to which I have referred above demonstrate beyond any doubt that Mr. Goodchild could, without any difficulty, have joined STL as a respondent to the Petition. They also show that Mr. Goodchild could have sought an order in the Petition for payment of compensation and/or an account of profits against Mr. Taylor and STL for the benefit of the Company which he was seeking to own in its entirety, and with which, for this purpose, he is now to be identified.

Instead of taking that course, it is clear that Mr. Goodchild did, at least initially, seek to achieve a similar result in economic terms by way of an alteration to the price which he might have to pay for Mr. Taylor’s shares on account of the value of the Retained Files WIP and the profits from the business diverted from the Company by Mr. Taylor. The prayer for relief in the Petition was as follows:

“(1)

it be ordered that [Mr. Goodchild] do purchase [Mr. Taylor’s] shares in the Company at fair value and upon the following bases:

(a)

that the Company be valued as a going concern excluding any premium to reflect the loss suffered by the Company as a result of the matters of unfair prejudice pleaded above;

(b)

that [Mr. Taylor] is required to give credit to [Mr. Goodchild] against the purchase price of the shares for 50% of the profit made by [STL] on the business unlawfully diverted by him to [STL];

(c)

that the sale be as between a willing purchaser and willing vendor;

(d)

that there be a discount by reference to the minority nature of [Mr. Taylor’s] shares in the Company;…”

Although there was a debate between the parties before me as to whether that relief covered precisely the same ground as is now being sought in the WIP Claim and the Account of Profits Claim, that debate misses the point. The issue is whether it would have been possible for Mr. Goodchild to have formulated and pursued an order for the same relief for the benefit of the Company in the Petition as is now sought in the current Part 7 claim. For the reasons set out in the authorities to which I have referred, I consider that section 996 is quite wide enough to have covered all such relief.

Secondly, Mr. Goldberg contended that it would have been practically impossible in the Petition to take full account of the Retained Files WIP and business diverted by Mr. Taylor, firstly because Mr. Taylor only resigned his directorship after the end of the trial, and secondly because Mr. Taylor and/or STL had not provided disclosure of the relevant documents and information concerning the value of the Retained Files WIP and the profits made by STL since his departure from the Company’s business.

I do not regard these as good reasons. The essential facts of the diversion of business which support the allegations in the instant claim were all known at the time of the Petition, and the fact that Mr. Taylor had not resigned served only to support and prolong any claims for unfair prejudice based upon such breach of duty. Indeed, it is clear from the very terms of sections 994 and 996 CA that they encompass continuing and threatened unfair prejudice, and appropriate relief could have been sought in the Petition to deal with the continuing breaches. Further, if and to the extent that details of the Retained Files removed and the work being done by STL was not known, further disclosure could easily have been sought.

Thirdly, Mr. Goldberg submitted that the Petition essentially only addressed issues of liability and not quantum, so that Mr. Taylor and STL were not now being vexed with the same issue twice, and no duplication of court time or resources will be involved determination of the WIP Claim and the Account of Profits Claim.

That submission is not entirely accurate as a matter of fact, because it is quite clear that the issue of quantum (i.e. the loss to the Company and the profits received by STL from the work diverted) was squarely raised in the Petition, because it was initially proposed by Mr. Goodchild in his prayer for relief that the price which he would have to pay for Mr. Taylor’s shares should take account of such matters. But in any event, for the following reasons I do not accept that this is the correct approach to take to the issue.

Notwithstanding the prayer for relief, as matters turned out, it would seem that Mr. Poole avoided grappling with the issue of the receipts from the Retained Files WIP or the profits derived by STL from the business diverted to it by Mr. Taylor, and he did not address the accuracy or completeness of Schedule 9(e). His approach to determining the value of the Company on the Continuing Basis simply extrapolated from the Company’s results for the period up to 30 June 2017, and made no attempt to add back any amount in respect of the receipts by STL in respect of the Retained Files WIP or the profits from the diverted work so as notionally to increase the Company’s maintainable earnings. Likewise, the valuation on the Exiting Basis focussed entirely on the Company’s receipts after 30 June 2017: again, there was no addition in respect of the Retained Files WIP or the profits made by STL from the diverted work.

As such, it is clear that both bases of valuation advanced by Mr. Poole in essence assumed that the Company had no claim to the value of the Retained Files WIP or the profits made by STL from the diverted business, and that it would not thereafter recover any amounts in respect of these matters so as to increase the Company’s maintainable earnings.

At trial, neither side appears to have questioned this approach by Mr. Poole. Indeed, when it came to submissions as to the value that Barling J should put upon Mr.

At that stage, in accordance with the Aldi guidelines, if there was an intention that the Company, once wholly owned by Mr. Goodchild, should be entitled to bring claims to recover compensation or an account in respect of the Retained Files WIP or the profits from the business diverted to STL, it was in my judgment imperative that this should have been spelled out to Barling J. That is especially so since the issue of follow-on proceedings was live, because it had been made clear that Mr. Goodchild’s intention, if he succeeded in acquiring the Company, was to cause the Company to seek to recover the balance on Mr. Taylor’s DLA. That course was, however, not taken by or on behalf of Mr. Goodchild.

In my judgment, this is a weighty factor which strongly supports the conclusion that the Company’s pursuit of the WIP Claim and the Account of Profits Claim for the ultimate benefit of Mr. Goodchild is an abuse of process. For reasons that I have explained, the clear inference from the two bases of valuation of Mr. Taylor’s shares was that the Company would not have any future right to recover monies in respect of the Retained Files WIP or the profits from the diverted business. In my view, the onus lay clearly upon Mr. Goodchild, who had originally raised such issues in his prayer for relief and was then seeking to take advantage of Mr. Poole’s approach to valuation to acquire Mr. Taylor’s shares at the lowest possible price, to raise the possibility that he might subsequently wish to cause the Company, which he would then wholly own and control, to seek to recover compensation or an account of profits from Mr. Taylor in respect of those matters. To use the phrase from Aldi, there can be no excuse for his failure to do so.

I am of course conscious that Barling J found that Mr. Taylor committed material breaches of his fiduciary duties to the Company, and that the result of a determination that it would be an abuse of process for the Company now to seek to recover its losses and an account of profits in respect of those matters is that STL will benefit from being able to retain those amounts.

It is also the case that, through STL, Mr. Taylor will benefit from retention of all such amounts, rather than benefitting only to the extent of his 50% shareholding in the Company from which those amounts were allegedly diverted. But the converse is also true: if the Company were now to recover those amounts, STL and Mr. Taylor would pay in full and, via the Company, Mr. Goodchild would benefit 100% rather than just in respect of the 50% share which he previously owned.

I believe, however, that I must also take into account that the effect of my earlier decision in relation to the DLA Claim is that Mr. Taylor will face the prospect of being ordered to repay that substantial debt to the Company. Whilst I express no view on the merits of that claim or of the defences which have been indicated to it, if I stand back and take a broad merits-based view, it would seem to me fundamentally wrong that having had his 50% shareholding in the Company acquired for a price that reflected neither the value of the DLAs, nor the possibility that the Company (of which he owned half) might be entitled the receipts and profits in respect of the Retained Files WIP and the diverted business, Mr. Taylor should now face having to pay both those amounts in full to the Company for the sole benefit of Mr. Goodchild.

In my view, the order for the buy-out (and costs) was an appropriate remedy in respect Mr. Taylor’s breaches of duty and unfairly prejudicial conduct. To require Mr. Taylor to sell his shares for a price that took neither factor into account and then

In my view, it is to avoid precisely this type of situation arising that I should pay full regard to the procedure set out by Thomas LJ in Aldi. That is particularly apposite in the context of unfair prejudice petitions concerning small private companies, where there is a regrettable tendency for disputes over the breakdown of relations between shareholders to become deeply personal, hostile and lengthy. In such cases, where possible the law should encourage a once-and-for-all determination and a clean break, and should do nothing that might be seen as permitting parties to keep matters up their sleeve and continue to litigate afterwards at further cost to themselves and imposing a further burden on the court to the detriment of other litigants.

As such, I reach the clear conclusion that pursuit by the Company of the WIP Claim and the Account of Profits Claim would be an abuse of process under the principle in Henderson v Henderson, and I propose to strike those claims out.

In the result I shall strike out the WIP Claim and the Account of Profits Claim but dismiss Mr. Taylor’s other applications.