Towler v Wills

The Defendant, Dr. Julian Wills, has applied for an order striking out the claim which has been brought against him by the Claimant, David Towler. The Skeleton Argument submitted by Mr. Rajesh Pillai, on behalf of the Defendant covered much ground but two main points in particular were relied upon. First, it was said that the Amended Particulars of Claim, as amplified by the Further Information supplied by the Claimant in response to a request for the same, did not properly particularise a claim against the Defendant. Second, the bulk of the damages claimed were not recoverable in law pursuant to the principles explained in Johnson v Gore Wood [2002] 2 AC 1.

The Claimant represented himself at the hearing of the application. He did not provide a Skeleton Argument but made oral submissions. It appears that he has had the benefit of legal advice and representation in the recent past. He told me that his claim was so complex that he had decided that it was better that he represented himself. At the end of the hearing he requested an opportunity to make submissions on the authorities which had been relied upon by counsel for the Defendant on the grounds that, although they had been provided to him before the hearing, he had not had a sufficient opportunity to consider them. I granted him that opportunity since he was representing himself. I ordered that any submissions by him on the authorities to which reference had been made during the hearing should be made by 4 pm on Wednesday 21 April. Such submissions were emailed to the Court at 1556 on that day but were not forwarded to me until 1140 on the following day after I had sent out a draft of this judgment in the mistaken belief that the Claimant had made no further submissions. I have now considered the Claimant’s further submissions.

The Claimant’s further submissions included the statement that he wished to amend his pleadings. Since he is representing himself I gave him a further 7 days (until 29 April) in which to serve a draft of any amendment for which he intended to seek leave. A draft amendment (in fact re-amendment) was served on 29 April.

I propose to consider, first, the Amended Particulars of Claim and, second, the draft Re-Amended Particulars of Claim.

The dispute between the parties arises out of a Shareholders Agreement dated 1 November 2002 to which the Claimant and Defendant, and others, were party. They were shareholders in a company known as Cambridge Online Learning Limited (“COL”). Clause 4 of that agreement provided as follows:

4.1

EACH of the parties hereto hereby undertakes as between themselves not to take any action or exercise any powers in any capacity or omit to do anything so as to result in the Company:

4.1.1

ceasing to be a private company or changing the nature of its business from the type of business conducted on or prior to the date hereof

………….

4.1.4

selling or otherwise disposing of the whole or any part of its fixed assets or acquiring fixed assets

….………

4.1.6

ceasing or threatening to cease to carry on its business except only as hereinafter mentioned

4.1.7

going into liquidation (except a voluntary liquidation for the purpose of re-organisation or re-construction or if the Company cannot by reason of its liabilities continue in business and that it is advisable to wind up)

…………

4.1.18

conducting its business otherwise than in the ordinary course and bona fide for the benefit of the Company as a whole and on an arm’s length basis as regards its business relationship and dealings with each of the parties hereto and any associates thereof within the meaning of section 435 of the Insolvency Act 1986 or companies associated therewith

………….

4.1.20

entering into any contract or arrangement otherwise than is appropriate to the business and at commercially competitive rates and in accordance with the proper maintenance and observance of the terms of this Agreement and the memorandum and articles of association of the Company

………….

4.1.22

entering into any transaction contract or arrangement or series of transactions contracts or arrangements without full and complete disclosure made previously to and with the express written consent, whether by resolution or otherwise, of all the shareholders

………….

4.2

save and except as may otherwise be agreed in writing by all the shareholders Provided always that

4.2.1

each of the shareholders shall at all times exercise all rights and duties bona fide and in all matters relating to the Company reasonably and in the best interests of the Company as a whole and shall make full disclosure to the other shareholders of all material matters relating to the business and affairs of the Company

4.2.2

nothing in this Agreement shall be construed so as to require any party hereto to guarantee any obligations of the Company to any person or to provide any further finance for the Company except only as mentioned in Clause 6”

The above clauses are those which the Claimant alleges the Defendant breached. It is to be noted that clause 4.1 imposes an obligation upon the shareholder not to take any action or omit to do anything which results in the Company acting in any of the ways set out in the sub-clauses.

The Claimant issued a Claim Form on 11 September 2009 which claimed damages for breach of the Shareholders Agreement. The details were specified in Particulars of Claim which appear to have been attached. The Claim Form was signed by a solicitor acting on behalf of the Claimant though the attached Particulars of Claim were unsigned. They were later replaced by Amended Particulars of Claim which were also unsigned.

The Amended Particulars of Claim allege breaches of the Shareholders Agreement, in particular of clauses 4.1.1 and 4.1.4 (by paragraph 5), clauses 4.1.6 and 4.1.7 (by paragraph 6), clauses 4.1.18 and 4.2.1 (by paragraph 7) and clauses 4.1.20 and 4.1.22 (by paragraph 8). Those breaches are alleged to have caused losses amounting to £2.593m.

The allegations of breach ought to have clearly followed the structure of clause 4 which, as I have said, imposed an obligation upon the shareholder not to take any action or omit to do anything which resulted in the Company acting in any of the ways set out in the sub-clauses. However, the Claimant’s pleading did not follow that structure, at any rate in a clear manner. By way of example paragraph 5 provided as follows:

“In breach of the business purpose obligation pleaded in paragraph 3(a) above [a reference to clauses 4.1.1 and 4.1.4 of the Agreement], the actions and non-disclosure breaches of the Defendant, involving various transactions with other Shareholders, family members, associates and companies associated therewith, in order to change the independent nature of the business of the Company by not implementing the approved business plan of the Company and thereby effectively rendering the Company an Ordinance 13 franchisee partner of IMCA, through the purchase and subsequent unauthorised use and disposal of certain assets known as the “Global; IMCA Campus and Registry” (“the Assets”) by the Company from IMCA-AL Inc. At the relevant times:

(a)

the Defendant was a member of the IMCA Council and acted in the interests of IMCA in relation to the purchase and subsequent sale of the Assets, including the unauthorised use of the same by IMCA in a proposed sale of the Assets to the Business School Netherlands

(b)

with the Defendant’s knowledge and acquiescence , KMI breached financial guarantees entered into with the Company

(c)

the Defendant was a nominee Director appointed by Knowledge Management Inc., and by Learning Services International SA, both of which were also Company shareholders which had conditionally agreed to fund the purchase of the Assets by the Company and the Defendant acted in accordance with the interests of both these companies and not exclusively in the interests of the Company

(d)

the Defendant acted together with his brother, Mathew Wills who was also a nominee Director of Knowledge Management Inc., and of Learning Services International SA in accordance with the interests of both these companies and not exclusively in the interests of the Company

(e)

Knowledge Management Inc., Learning Services International SA and IMCA-AL Inc., were entities factually controlled and or advised by the Defendant’s father, Gordon Prestoungrange, who was also a member of the IMCA Council

(f)

the Defendant’s wife, Laura Wills, was the IMCA contract manager in relation to the sale, purchase and use of the Assets. ”

With respect to the pleader this is not a clear pleading because it is very difficult to understand what is being said. However, having had the benefit of the Claimant’s oral submissions, I understand that the thrust of the allegation is that the Defendant acted, not in the interests of COL, but in the interests of IMCA, KMI or LSI when certain assets were purchased by COL.

With this assistance my understanding of the pleading is as follows. The conduct of the Defendant on which reliance is placed is the “actions and non-disclosure breaches of the Defendant” and such conduct resulted in corporate activity within sub-clauses 4.1.1 and 4.1.4 of the Agreement, namely, changing the nature of the business of the company and the acquiring of certain assets. The subsequent sub-paragraphs (a)-(f) appear to be particulars of the conduct of the Defendant on which reliance is placed, although sub-paragraphs (e) and (f) do not expressly allege or particularise conduct of the Defendant.

The allegations in the sub-paragraphs were repeated under the subsequent paragraphs of the pleading which alleged breaches of further sub-paragraphs of clause 4. Thus the same actions of the Defendant were alleged to have caused COL to incur major financial problems resulting in liquidation (paragraph 6) and to act other than bona fide and on an arm’s length basis (paragraph 7).

In his oral submissions to me the Claimant explained that the essence of his case was that the Defendant had a conflict of interest (as between his duties to COL on the one hand and his interests in IMCA, KMI and LSI on the other hand) which he failed to disclose when purchasing assets (in particular the Campus) on behalf of COL and taking certain other actions, in particular, repaying a loan.

I asked the Claimant to identify by way of example what transactions had caused loss to COL. He said that the Campus had been bought by COL for £200,000 but was valueless and that a debt of £100,000 had been paid by COL. These figures cannot be found in the Amended Particulars of Claim.

Not surprisingly the Defendant served a request for Further Information pursuant to Part 18 of the CPR. The Claimant served a response of some 10 pages. It is signed by the Claimant himself. It begins with a dramatis personae and, by way of introduction, asserts that the Defendant “brought down” COL for his own financial benefit, put COL and the Claimant in danger of breaching the Foreign Corporations Act and the UK money laundering regulations, was responsible for COL falling into insolvency and suffered from conflicts of interest involving IMCA, KMI and LSI. These allegations appear to include matters not found in the Amended Particulars of Claim. A number of “specific points” are then mentioned in response to the request for further information as to paragraphs 5-9 of the Amended Particulars of Claim. Considerable effort is required to relate these “specific points” to the Amended Particulars of Claim. Some plainly do relate to the Amended Particulars, for example, the alleged conflicts of interest. But much cannot be easily related to the Amended Particulars of Claim. Perhaps most, if not all, of the Further Information does relate to the pleading but precisely how is very difficult to discern. The reader is left confused. There is however a reference to “the loss of an asset valued …at £200,000 on the COL Balance Sheet” which is presumably the sum alleged to have been lost on the purchase of the Campus; see paragraph (5) on page 9. There is also a reference to a loan of £100,000 and its early repayment which must be the loan mentioned to me by the Claimant in his oral submissions; see p.4 paragraph 1, p.5 paragraph 1 and p.9 paragraph 4(ii).

CPR 3.4 gives the Court power to strike out a statement of case which is an abuse of the Court’s process or is otherwise likely to obstruct the just disposal of the proceedings. The notes to CPR 3.4 state that these grounds include statements of case which are unreasonably vague or incoherent. That is no doubt because such statements of case are an abuse of the Court’s process and are likely to obstruct the just disposal of the case.

In dealing with the first point made on behalf of the Defendant it is necessary to consider whether the Amended Particulars of Claim and the Further Information are unreasonably vague or incoherent. I have come to the conclusion that they are and on that account are an abuse of the process of the Court and obstruct the just disposal of the case.

The purpose of a pleading or statement of case is to inform the other party what the case is that is being brought against him. It is necessary that the other party understands the case which is being brought against him so that he may plead to it in response, disclose those of his documents which are relevant to that case and prepare witness statements which support his defence. If the case which is brought against him is vague or incoherent he will not, or may not, be able to do any of those things. Time and costs will, or may, be wasted if the defendant seeks to respond to a vague and incoherent case. It is also necessary for the Court to understand the case which is brought so that it may fairly and expeditiously decide the case and in a manner which saves unnecessary expense. For these reasons it is necessary that a party’s pleaded case is a concise and clear statement of the facts on which he relies; see Spencer v Barclays’ Bank 30 October 2009 per Mr. Bompas QC at paragraph 35. The Amended Particulars of Claim are, perhaps, concise but they are not clear or coherent. The transactions which the Defendant is alleged to have conducted in the name of the company without disclosing his conflict of interest and which have caused loss have not been clearly identified. The Further Information could perhaps have cured these defects but it has not done so. The particular transactions cannot be identified with ease. Moreover, additional claims, not foreshadowed or pleaded in the Amended Particulars of Claim, appear to have been added. They have no place in the Further Information since they had not been pleaded in the Amended Particulars of Claim. Further, evidential material has been added in such a way as to make comprehension of the Further Information difficult.

It is not fair and just that the Defendant cannot be sure of the case he has to meet. It may well be that, with appropriate legal advice, the Claimant could have pleaded a concise, clear and particularised case against the Defendant but that has not been done. If the Amended Particulars of Claim are not struck out there is a very real risk that unnecessary expense will be incurred by the Defendant in preparing to defend allegations which are not pursued, that he will be impeded in his defence of allegations which are pursued and that the Court will not be sure of the case which it must decide.

This application has not been sprung upon the Claimant. He was given notice by the Defendant that his Amended Particulars of Claim were regarded as deficient. Thus he was requested on 15 October 2009 to particularise his case so that the Defendant could understand properly the case he had to meet. Further, the Defence served on 27 November 2009 informed the Claimant that the Amended Particulars of Claim were embarrassing for want of particularity and that the Defence was served without prejudice to the Defendant’s right to apply to strike out the Amended Particulars of Claim. After the Claimant served his response to the request for further information pursuant to Part 18 on 19 January 2010 the Defendant’s solicitors wrote again to the Claimant on 9 March 2010. The purpose of the letter was to provide details of the areas of the claim which were likely to be struck out and to request the Claimant to “particularise the specific transactions which you allege constitute a breach of contract by [the Defendant] and to clarify what [the Defendant] is said to have done or not done in relation to each of them.” The Claimant replied on 12 March 2010 and stated that he regarded the Defendant’s letter as bullying. He replied again by letter dated 19 March 2010 but on this occasion stated that he was pleased to have received the Defendant’s letter. He refused to withdraw any parts of his claim and confirmed that at least part of his claim concerned the alleged conflict of interest in which the Defendant had placed himself which “resulted in serious and multiple breaches of the relevant Shareholders Agreement, as previously identified……It was the actions and or inactions of [the Defendant] that were ultimately shown to be of the gravest financial detriment to COL and it is these actions and or inactions that constitute and evidence multiple material breaches of the Shareholders Agreement dated 1 November 2002, as previously specified.” However, no further amended pleading was proffered or promised at that time. The specific transactions relied upon were not further identified (at any rate with sufficient clarity) despite the Defendant’s reasonable request.

In these circumstances I have concluded that it is fair, just and proportionate to strike out the Amended Particulars of Claim. I have taken into account the observation of Lord Templeman in Williams & Humbert Ltd. v WH Trade Marks (Jersey) Ltd. [1986] AC 368 that striking out is only appropriate in plain and obvious cases (upon which reliance is placed by the Claimant in his submissions served after the hearing) but I consider that it is plain and obvious that this claim, as pleaded in the Amended Particulars of Claim and Further Information, should be struck out.

The second basis upon which it was submitted that the claim, or at any rate the greater part of the damages claimed, should be struck out is that the losses claimed are not recoverable in law. The losses claimed are expressed to be of four types, as follows:

The factual allegations apparently intended to be made by the Claimant against the Defendant would also give COL a cause of action against the Defendant for breach of fiduciary duty as a director of COL. It was therefore submitted that the first three heads of loss are not recoverable pursuant to the principle that a shareholder cannot recover losses which are reflective of losses suffered by the company and which can also be recovered by the company for the benefit of its creditors; see Johnson v Gore Wood [2000] 2 AC 1 and in particular the speech of Lord Millett at p.61 G - p.63 E. The passages at p.62 E and p.66 H make clear that the first two heads of loss fall within this principle. The passage at p.67 B-C makes clear that the third head also falls within this principle.

Reliance was placed by the Claimant in his submissions served after the hearing on the approach of Rimer J. in Perry v Day (2005) BCC 375 at para. 65 that the Court must be satisfied of the company’s claim on the facts, something which may not be possible before trial. However, in the present case the Claimant did not deny that the Defendant was a director of COL or that as a director the Defendant would owe a fiduciary duty to COL. To the extent that the Claimant makes good his allegations that the Defendant acted without disclosing a conflict of interest he would also establish a breach by the Defendant of his fiduciary duty to COL. I therefore consider that on the facts as apparently alleged by the Claimant COL will have available to it the type of claim which brings into play the principle in Johnson v Gore Wood.

Where the wrong done to the company has made it impossible for the company to pursue its own remedy against the wrongdoer the principle in Johnson v Gore Wood does not apply; see Giles v Rhind [2003] Ch. 618. The Claimant has indicated that he relies upon this exception. He asserted in argument that the wrongdoing of the Defendant caused the liquidator of COL to have no funds with which to pursue the legal remedies otherwise available to COL. However, there is no pleaded allegation to this effect in the Amended Particulars of Claim. It seems to me that this is necessary in order to argue that the cause of the loss was the action of the wrongdoer rather than the choice of the liquidator not to pursue its own remedy for the benefit of COL’s creditors.

The Claimant made reference to correspondence between the liquidator and himself in which the liquidator sought funds from the Claimant. I agree that this correspondence would be consistent with an allegation, had it been made, that the actions of the Defendant had disabled COL from pursuing its own remedy. Later correspondence, relied upon by the Defendant, does not support the Claimant’s suggestion. However, the determining point for present purposes is that the necessary factual allegation has not been made in the pleadings.

It follows that the pleaded case on the first three heads of loss cannot succeed. In the absence of any request by the Claimant to amend his pleading to make the necessary allegation this is a further reason for striking out the amended claim for recovery of the first three heads of loss.

The fourth head is not open to this objection. It is however open to the objection that it is vague and unparticularised. The Claimant was asked for particulars and replied as follows:

“These figures are calculated on the basis of my client’s company’s annual returns. These will not be made available to your client, they will only be made available to the Court at the appropriate time.”

This suggests that the losses in question were incurred not by the Claimant but by a company. In argument the Claimant explained that he provided the company with funds and then the company incurred expenditure which has given rise to the claim for £200,000. On this basis “the costs related to establishment of new business in the market” would appear to have been incurred by the company rather than by the Claimant. There is therefore a further reason for striking out the claim for this head of loss also, namely, that the company is not party to this claim and does not appear to have a cause of action.

For these reasons the Defendant is entitled to succeed on his application to strike out the claim. However, as I have indicated, an application to re-amend the Particulars of Claim has been made.

The Claimant told me that he had endeavoured by this pleading to make his case clear. Paragraphs 1 and 2 are in substance unchanged. A new paragraph 3 pleads that the Defendant was a director of COL. Paragraph 4 sets out the provisions of clause 4 of the Shareholders’ Agreement on which reliance was placed. Paragraphs 5-11 then allege various breaches of the shareholders’ agreement. They are not identical to paragraphs 5-8 of the Amended Particulars of Claim.

In essence paragraph 5 complains of a failure by the Defendant to disclose his interest as director and attorney of KMI when allowing COL to pay £100,000 to KMI when there was no legal basis for such payment. This is a serious allegation against the Defendant. In effect it is said that when acting as a director of COL he allowed COL to take action which was detrimental to COL but advantageous to KMI in which he was interested. The claim reflects what I had been told at the previous hearing but which had not been pleaded.

Counsel for the Defendant submitted that the serious nature of the claim, akin to an allegation of dishonesty or fraud, was such that it must be sufficiently particularised; see The Commercial Court Guide Rule C1.2(c) and Three Rivers [2003] 2 AC 1 at 292 per Lord Millett. He submitted that it was not sufficiently particularised.

I accept that submission. In order to establish that the Defendant “allowed” a payment to be made when there was no legal basis for it the Claimant must show that the Defendant knew that the payment was to be made and that there was no legal basis for it. I was referred to a document provided by the Claimant which recorded that the instructions for the payment of £100,000 had been given by the Claimant himself and the Defendant’s brother. Yet no allegation is made that the Defendant knew that the payment was to be made or that it had no legal basis. It follows that no particulars are given of any such knowledge. The Defendant is left to guess at the factual basis of the allegation which is being made against him.

Paragraph 6 of the new pleading complains of a failure by the Defendant to disclose his interest as director and attorney of LSI on three occasions; when transferring his shares in IRDC in March 2003, when a loan facility was being arranged for COL and when COL issued a Promissory Note in July 2005. I was told, though this does not appear to be pleaded, that these matters led up to the unjustified payment of £100,000 referred to in paragraph 5. However, paragraph 6 does not explain why the transfer of shares in another company by the Defendant was a breach of the Agreement or what, if any, involvement the Defendant had with the loan facility or Promissory Note. The nature of the serious allegations made against the Defendant is not at all clear.

Paragraph 7 does not make sense. It complains that the Defendant gave a guarantee in respect of COL’s indebtedness. That seems to me a benefit rather than a detriment to COL.

Paragraph 8 also makes no sense. It complains of “instructions” given by the Defendant’s father to COL to pay £200,000 for the purchase of a “campus”. It is not explained how this is an actionable breach of duty by the Defendant.

Paragraph 9 complains that the Defendant “allowed” COL to acquire the “campus” when it had no value. The documents attached to the new pleading include a letter dated 27 June 2005 from IMCA regarding the sale and purchase which the Claimant signed thereby indicating that the terms of the sale were satisfactory. The pleading does not allege that the Defendant knew that the sale was to take place or that he knew the campus had no value. The Claimant referred me to an email dated March 15 2006 which referred to the campus having no market value. However, I was unable to deduce from this email that the Defendant knew that that was the case at the time when COL purchased the campus. In any event there was no allegation of such knowledge.

Paragraph 10 pleads that the actions alleged in the previous paragraphs were a breach of Recital C of the Agreement. Recital C stated that certain persons had consented to hold office as directors. I do not understand how the conduct alleged in the previous paragraphs amounted to a “breach” of the Recital.

Paragraphs 11 and 12 concerned loss and damage. There was an express plea to counter the difficulty of claiming “reflected loss” and some of the particulars of loss have been amended.

I am not persuaded that I should grant permission to amend. The Claimant seeks damages of about £2.5m. from the Defendant. Serious allegations akin to dishonesty are made against him. Fairness requires that the nature of the claim brought against him is clear so that he may defend himself against it. Paragraphs 5 and 9 allege that the Defendant allowed two transactions detrimental to COL to take place without alleging and particularising the crucial element of knowledge. Paragraph 6 is insufficiently particularised to such an extent that the nature of the case being made is not apparent. Paragraphs 7, 8 and 10 do not make sense.

For the reasons I have given the claim must be struck out and permission to amend refused.

The Defendant seeks an order for his costs of the action, including the costs of the strike-out application and the amendment application. Since he has succeeded in obtaining an order that the claim should be struck out and has successfully resisted the application to amend it is appropriate that he have such an order.

I consider that the costs of the action, including the costs of the applications, should be the subject of a detailed assessment. The schedules of costs shown to me exceed £93,000. The Claimant will therefore have an opportunity to challenge the level of costs.

It was submitted that the assessment should be on the indemnity basis on the grounds that the Claimant had been given every opportunity to clarify or withdraw his case; see paragraph 20 above. Since the last hearing and after receiving a copy of the amended pleading the Defendant’s solicitors again wrote explaining the defects in the pleading but to no avail.

The Claimant had the assistance of legal advice until 21 January 2010. He has represented himself since then for the reason given in paragraph 2 above. He has not complained of a lack of means to instruct a solicitor. I consider that the conduct of his case has been such as to justify costs being assessed on an indemnity basis. He has been given every opportunity to provide a clear and particularised statement of his case and he has failed to do so. The pleading of his case has been, at all stages, so defective that the circumstances of the present case are sufficiently out of the ordinary to justify costs on the indemnity basis.

I consider it appropriate to order a payment on account of costs in the sum of £30,000. I have taken into account the Claimant’s observation that the costs claimed are excessive when compared with the sums quoted to him for conducting his case. However, I consider that when assessed the Defendant’s costs are very likely to be assessed in a sum of at least £30,000. The Defendant was faced with a substantial claim against him of about £2.5m. and it is to be expected that he would incur substantial costs in resisting it. The payment on account should be made within 21 days.

I shall ask counsel to prepare a draft order.