Reeves v Sprecher & Ors [2007] EWHC 117 (Ch)

[2007] EWHC 117 (Ch)Case No HC 06C03185
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 5 February 2007
Before
MR JUSTICE LEWISON
Between
CRAIG REEVESClaimant(1) PETER ALLEN SPRECHERDefendants(2) BINA SANGHVIDefendant(3) PLATINUM CAPITAL MANAGEMENT LIMITEDDefendant(4) PLATINUM TRADING MANAGEMENT LIMITEDDefendant
Mr John Martin QC and Mr Thomas Lowe (instructed by Cobbetts LLP) for ClaimantMr John Higham QC (instructed by White & Case LLP) for DefendantsHearing Hearing dates: 24 th, 25 th, 26 th January 2007
Judgment

Mr Reeves’ case in outline

[1]In the spring of 1999 Mr Craig Reeves was 26 years old and had been working in the hedge fund industry for some three years. The company for which he worked was precarious; and he left in August 1999. A few months before he left he began discussions with Mr Peter Sprecher about the possibility of going into business together in the investment management industry, principally in hedge funds. Mr Sprecher was a successful entrepreneur, but did not know about hedge funds. Mr Reeves knew about hedge funds, but had no money. In essence they agreed that Mr Sprecher would provide the capital for the new business; and Mr Reeves would provide the know-how.[2]Early on in the negotiations they agreed that there would be an on-shore company and an off-shore company involved in the new business. Mr Reeves says that it was also agreed that they would share the profits from the new business equally, although Mr Sprecher was to have voting control of the companies. The reason behind the decision to have an off-shore company was, according to Mr Reeves, that regulatory requirements were looser off-shore than they are in this country. Tax advantages may have played their part too.[3]It is common ground that Mr Sprecher and Mr Reeves reached an agreement about the setting up of the new business. A number of draft written agreements were prepared. However, it is also common ground that the full terms of the agreement were not embodied in any written agreement. So the agreement is partly oral and partly written.[4]In the event, two companies were incorporated in August 1999: i) Platinum Capital Management Ltd (“PCM”), incorporated in England and Wales and ii) Platinum Trading Management Ltd (“PTM”), incorporated in Nevis, in the Eastern Caribbean.[5]Mr Sprecher holds 51 per cent of the shares in PTM. Mr Reeves holds 49 per cent. PTM has a board of three directors: Mr Sprecher, Mr Reeves and Mr Mahalingam. Mr Sprecher lives in the USA, although he is a frequent visitor to England; Mr Reeves lives in England, and Mr Mahalingam lives in Switzerland. PTM has a registered office in Nevis, but it does not appear to have a conventional place of business there. It has two employees, who provide accountancy services. They are based in the Isle of Man. PTM has no place of business in England, no employees in England, no bank account in England and no assets in England. Mr Reeves says that the board have been careful to ensure that all decisions about PTM have been made off-shore.[6]Mr Sprecher and Mr Reeves, together with PTM and PCM entered into a written agreement. It bears the date 1 September 1999; although it may well be that it did not come into existence until many years later. Mr Reeves also entered into a service agreement with PCM under which he was appointed its managing director.[7]Mr Reeves and Mr Sprecher have fallen out. Mr Reeves says that the trouble started when Ms Sanghvi was recruited in March 2005 to act as PCM’s compliance officer and chief operating officer. At Mr Sprecher’s insistence she was also appointed as a director of PCM. From then on Mr Sprecher relied more and more on Ms Sanghvi and less and less on Mr Reeves. Mr Reeves says that Mr Sprecher embarked on a campaign to undermine Mr Reeves’ authority as managing director of PCM; and asserted that he himself was the CEO of PCM. He repeatedly demanded that Mr Reeves should transfer some of his existing shareholding in PTM to Mr Mahalingam, some to a Mr Streit (a friend of Mr Sprecher’s) and some to Ms Sanghvi. Mr Reeves refused all these demands. Mr Sprecher also put in front of Mr Reeves an agreement under which Mr Reeves was to agree to exchange his shares in PTM for common stock with no voting rights. Mr Reeves refused to sign.[8]Mr Reeves says that the final straw came when he was suspended as managing director of PCM and summoned to a disciplinary hearing. He says that the disciplinary hearing was, in effect, a kangaroo court based on trumped up charges which both Mr Sprecher and Ms Sanghvi knew to be false and baseless. He says that they had determined to cause PCM to dismiss him whatever he said at the disciplinary hearing, in furtherance of Mr Sprecher’s desire to ease him out of Platinum and, if possible, acquire his shareholding. Mr Reeves says that he regarded the convening of the disciplinary hearing as amounting to a constructive (and wrongful) dismissal.[9]Mr Reeves also says that he fears that Mr Sprecher is intent on causing PTM to allot new shares thus diluting Mr Reeves’ 49 per cent shareholding. According to Mr Reeves, Mr Sprecher’s intention is to do so without diluting his own shareholding.

The claims relating to PTM

[10]Mr Reeves has issued proceedings in this court claiming against Mr Sprecher an injunction “on behalf of himself and on behalf of PTM to restrain Mr Sprecher from taking any further step to dilute Mr Reeves’ interest in PTM without paying him fair compensation”.[11]Mr Reeves advances this claim in a number of ways. First, he says that he and Mr Sprecher made an express agreement that no further shares would be issued in any Platinum entity without the approval of 80 per cent of shareholders. Consequently, the issue of further shares in PTM would be a breach of contract. Second, he says that as a director of PTM Mr Sprecher owed PTM a duty to exercise his power as director only for proper purposes in the interests of PTM and not in order to promote his own interests. He says that an allotment of shares made in order to dilute his interest without diluting Mr Sprecher’s interest would be a breach of fiduciary duty owed by Mr Sprecher to PTM. Since Mr Sprecher has voting control of PTM it is obvious that PTM will not sue Mr Sprecher. Consequently Mr Reeves says that he is entitled and ought to be allowed to bring a derivative action in this court against Mr Sprecher on behalf of PTM.[12]Mr Reeves also proposes to amend the Particulars of Claim to allege that shares in an American corporation, Platinum Capital Management USA LLC (“PCM USA”) are held on trust for PTM. This claim is an alternative to Mr Reeves’ existing claim that under the terms of his agreement with Mr Sprecher he is himself entitled to a 49 per cent shareholding in that company. The proposed claim, which is also a derivative claim brought on behalf of PTM, is based on an allegation that it was a breach of Mr Sprecher’s fiduciary duty to PTM to have failed to take steps to ensure that the shares in PCM USA were held on trust for PTM.[13]I am asked to give permission under CPR 19.9 for Mr Reeves to continue both these claims. PTM opposes the grant of permission on the basis that: i) Disputes about the internal management of a company should be determined in its place of incorporation and ii) This applies equally to questions whether a shareholder is entitled to bring a derivative action.[14]These questions were considered by Lawrence Collins J in Konameneni v Rolls Royce (India) Ltd [2002] 1 WLR 1269. He held that: i) Although the courts of the place of incorporation do not have exclusive jurisdiction for making orders controlling the exercise of discretionary powers, those courts are “very likely indeed” to be the appropriate forum: para 55 ii) It may be wholly unjust to require recourse to an offshore haven to pursue fraudulent directors in a case which has no connection with the jurisdiction other than that it is the place of incorporation: para 66 iii) The courts of the place of incorporation will “almost invariably” be the most appropriate forum for the resolution of the issues which relate to the existence of the right of shareholders to sue on behalf of the company: para 128.[15]There is no doubt that as a matter of legal principle derivative actions are possible under the law of Nevis: section 75 of The Nevis Business Corporation Ordinance so provides. Equally there is no doubt that Nevis has an established judicial system in which a fair trial of the issues raised in the proposed derivative claims can be had.[16]So far as the claim relating to the prospective issue of further shares is concerned: i) The decision to issue more shares must be a decision of the board, and the board always holds its meetings offshore; ii) If the board does decide to issue more shares they will be issued in Nevis; iii) The purpose of the claimed injunction is therefore a claim to restrain acts which will take place (if at all) outside the jurisdiction.[17]In my judgment this is not an exceptional cases of the kind to which Lawrence Collins J referred. No doubt in the sort of case that he was contemplating the foreign corporation would have had some assets within the jurisdiction; or the acts of the fraudulent directors might have been committed within the jurisdiction. None of that applies to the present case. The only connection that PTM has with this jurisdiction is the fact that Mr Reeves lives here and has chosen to instruct an English legal team.[18]Mr Martin QC relied on the latter fact as amounting to a so-called “Cambridgeshire factor” (see The Spiliada [1987] 1 AC 460, 469) together with the fact that Mr Reeves has other claims against PCM, Mr Sprecher personally and Ms Sanghvi, a director of PCM. It is true that factors such as the availability of witnesses, the risk of multiplicity of proceedings and the fact that one party has incurred expense in preparing for trial, engaging expert witnesses and educating and instructing counsel are of significance. But the scale of the litigation in TheCambridgeshire was not comparable to the scale of the proposed litigation in this case. In TheCambridgeshire counsel’s opening speech alone took 15 days; and there were likely to be a great many witnesses together with experts. That is not this case. Although the factors I have mentioned, including the Cambridgeshire factor, are matters which I must and do take into account, I cannot give them the weight that they were given in The Spiliada.[19]There is one further matter which seems to me to be relevant. Not only is Mr Reeves a shareholder in a corporation incorporated in Nevis, he participated in the choice of the place of incorporation. At any rate it was always part of the plan that at least one entity would be an offshore corporation. No doubt that choice was made for reasons that seemed good at the time. One of the reasons for choosing the place of incorporation of a company is that it will be governed by the laws of that place. But having made the choice of the place of incorporation, it does not seem to me to be right to repudiate that choice when things go wrong.[20]I am not therefore persuaded that there is any feature of this case which is sufficient to displace the normal situation that the courts of the place of incorporation are the appropriate forum in which matters relating to the internal management of a company (including the bringing of derivative actions) should be determined. I therefore refuse permission for Mr Reeves to continue his derivative claims.[21]Having reached that conclusion, it is probably better that I say little about the merits of the underlying claims. However, in case the matter goes further, I record my views briefly as follows: i) The claim for an injunction is a claim against Mr Sprecher alone. Mr Reeves and Mr Mahalingam are also members of the board. So far as I am aware any decision of the board would have to command at least a majority. Mr Martin QC expressly disclaimed any allegation that Mr Mahalingam was tainted with any impropriety. On the face of it, therefore, Mr Sprecher cannot do that which the injunction seeks to restrain him from doing. ii) The evidence of the threat by Mr Sprecher to take unilateral action (as opposed to trying to persuade Mr Reeves to agree to dilution of his shareholding by transferring part of his existing shareholding) is very thin. Mr Martin QC postulated a number of scenarios which might enable Mr Sprecher to achieve his alleged objective. But the claim in the present action was issued in August 2006 and no steps towards that end have been taken in the intervening five months. Moreover, all the postulated scenarios would require advance notice to be given to Mr Reeves; iii) The form of the claimed injunction, which would allow Mr Reeves’ shareholding to be diluted provided that he himself is paid fair compensation does not, on the face of it, appear to be relief sought for the benefit of the company, which, again on the face of it, would not suffer loss if further shares were issued. iv) The claim relating to PCM USA concerns expenditure of money in the United States. It has no connection with this jurisdiction. The claim proposed on behalf of PTM, namely that the shares in PCM USA belong to it in equity, also appears to be inconsistent with Mr Reeves’ personal claim that he is personally entitled to the benefit of 49 per cent of the shares in PCM USA.[22]Mr Higham QC raised the possibility that a claim by a shareholder to restrain the board from improperly exercising a power to allot shares is not a derivative action at all, but is an action based on an infringement (or threatened infringement) of the shareholder’s own contractual rights as embodied in the company’s articles of association. In this submission he has the support of Hoffmann J in Re a Company (No 005136 of 1986) [1987] BCLC 82. If this is right then Mr Reeves does not need any permission under CPR 19.9 to maintain his claim. Other cases to which I was referred are more equivocal; or suggest that the claim is one that can only be made by the company itself. But the claim would, as it seems to me, have to be made against the company itself rather than against the directors, who are not parties to the statutory contract. The Particulars of Claim make it clear that no relief is sought against PTM. So the Particulars of Claim would need to be amended to make such a claim. Although no formal application to amend was made Mr Martin asked me to treat one as having been made. Mr Higham did not object to this somewhat unusual course, on the basis that the scope of the claim was clear enough. However, since it is my view that Nevis is the proper forum for the resolution of questions concerning the internal management of PTM, I refuse to allow the amendment. I do not therefore need to decide the precise nature of the claim; or whether there is a personal cause of action vested in the shareholder either in place of, or in addition to, a cause of action vested in the company itself.[23]Mr Reeves seeks to amend the Particulars of Claim to claim an injunction restraining Mr Sprecher from applying the assets of PTM otherwise than in the ordinary course of business. There is no specific instance of any such application or threat of such application, apart from the allegations in relation to PCM USA. For the same reasons that lead me to conclude that the courts of Nevis are the proper forum for such claims, I refuse permission to make this amendment.[24]Mr Reeves’ final complaint about PTM is that although he is a director, he has been refused information about the company’s business except upon terms that he signs a confidentiality undertaking the terms of which he finds unacceptable. He therefore seeks to amend the Particulars of Claim to make this allegation in support of his claim to an injunction restraining Mr Sprecher from applying PTM’s assets otherwise than in the ordinary course of business. This too is a dispute between directors about the internal management of the company. The Nevis Business Corporation Ordinance provides a statutory remedy in cases of this kind, which requires an application to the High Court in Nevis: The Nevis Business Corporation Ordinance, s. 78 and s. 79. In my judgment it is plain that Nevis is the appropriate forum for resolving this complaint. I refuse to allow this amendment.

The claims in contract against Mr Sprecher

[25]Paragraph 49 of the Particulars of Claim alleges that Mr Sprecher’s conduct in taking steps designed to bring about the dilution of Mr Reeves’ interest in PTM amounted to a breach of the agreement between him and Mr Sprecher. To the extent that the allegation is based on the pleaded term of the agreement that ownership of the shares in the Platinum entities would not be altered without the approval of 80 per cent of shareholders, the pleaded allegations do not disclose an actual breach. No shares have in fact been issued which would dilute Mr Reeves’ shareholding. To the extent that the allegation is based on a breach of the implied obligation of good faith, a breach may have been disclosed. But since no shares have been issued, it has given rise to no loss; and none has been pleaded. The same paragraph of the pleading does, however, go on to allege that the same alleged facts amount to a threatened breach; and paragraph 1 of the prayer claims an injunction to prevent Mr Sprecher from taking steps to dilute Mr Reeves’ shareholding without paying him fair compensation. But as I have said in paragraph 21 above, the evidence of threat is thin; and it does not appear that Mr Sprecher could implement the threat anyway. I do not consider that Mr Reeves has a real prospect of succeeding on this claim; and I give summary judgment against him.[26]Paragraph 50 of the Particulars of Claim alleges that the taking of steps to issue further shares or “to procure by pressure the transfer by Mr Reeves of some of his shares” amounts to a breach of the obligation of good faith. In my judgment the claim relating to the issue of further shares suffers from the same defects as the claim pleaded in paragraph 49 of the Particulars of Claim. I give summary judgment against Mr Reeves on that claim. There is rather more evidence which supports the allegation that Mr Sprecher has exerted pressure on Mr Reeves in order to persuade him to transfer part of his existing shareholding to persons nominated by Mr Sprecher. However, Mr Reeves has stoutly resisted that pressure. Accordingly, even though Mr Sprecher’s conduct may have amounted to a breach of the obligation of good faith, it has caused Mr Reeves no loss. Mr Reeves does not claim an injunction restraining Mr Sprecher from exerting the alleged pressure on him. In those circumstances, trial of that issue does not, in my judgment, serve any useful purpose. To advance a claim for breach of contract, where the breach has caused no loss, and where no injunction is claimed, does not, in my judgment, amount to “reasonable grounds for bringing … the claim” within the meaning of CPR 3.4 (2)(a). I will therefore strike out that part of the claim. The claims in tort against Mr Sprecher and Ms Sanghvi Inducing breach of contract

The claims in tort against Mr Sprecher and Ms Sanghvi

[27]The starting point for this claim is Mr Reeves’ allegation that the convening of the disciplinary hearing on trumped up charges, taken in conjunction with a previous campaign by Mr Sprecher and Ms Sanghvi to undermine his authority, was a repudiatory breach by PCM of Mr Reeves’ contract of employment. Mr Sprecher and Ms Sanghvi knew of his contract of employment; and because, according to Mr Reeves, they knew that the charges were false and baseless, they must have intended PCM to break that contract by wrongly dismissing Mr Reeves.[28]Mr Higham argued that the charges upon which the decision to call a disciplinary hearing was based would have been more than enough to justify a dismissal. Although he accepted that as regards two of the charges it was not possible to decide this question summarily, he said that a third charge (circulating a lewd and offensive e-mail) was enough at least to warrant suspension and a disciplinary hearing. Although it appears on the face of the documents that the sending of the e-mail was a breach of PCM’s written policy on e-mails, I am not prepared to decide summarily that it was a breach of sufficient gravity to warrant either suspension or formal disciplinary proceedings. Much will depend on the culture of the particular company concerned. There is evidence of the circulation of e-mail jokes within PCM and, while those e-mails are not as crude as Mr Reeves’ puerile e-mail, this evidence may support the conclusion that the e-mail policy was rarely if ever enforced. I will proceed therefore, on the basis that Mr Reeves’ factual allegation may be right.[29]Even so, Mr Higham says that no personal claim in tort is maintainable against either Mr Sprecher or Ms Sanghvi. He relies on what has been called the rule in Said v Butt [1920] 3 KB 497. In that case McCardie J referred to the principle that a person can be liable in tort for inducing another to breach a contract. He continued:
“But the servant who causes a breach of his master's contract with a third person seems to stand in a wholly different position. He is not a stranger. He is the alter ego of his master. His acts are in law the acts of his employer. In such a case it is the master himself, by his agent, breaking the contract he has made, and in my view an action against the agent under the Lumley v. Gye principle must therefore fail, just as it would fail if brought against the master himself for wrongfully procuring a breach of his own contract.”
[30]He concluded:
“I hold that if a servant acting bona fide within the scope of his authority procures or causes the breach of a contract between his employer and a third person, he does not thereby become liable to an action of tort at the suit of the person whose contract has thereby been broken. I abstain from expressing any opinion as to the law which may apply if a servant, acting as an entire stranger, or wholly outside the range of his powers, procures his master to wrongfully break a contract with a third person. Nothing that I have said to-day is, I hope, inconsistent with the rule that a director or a servant who actually takes part in or actually authorizes such torts as assault, trespass to property, nuisance, or the like may be liable in damages as a joint participant in one of such recognized heads of tortious wrong.”
[31]This statement of principle has been approved by the Court of Appeal (G Scammell and Nephew Ltd v Hurley [1929] 1 KB 419; DC Thomson & Co Ltd v Deakin [1952] 2 All ER 361); and although viewed with some disfavour in the most recent case in the Court of Appeal (Welsh Development Agency v Export Finance Co Ltd [1992] BCLC 148) was nevertheless treated as binding. However, the disfavour with which the rule was viewed in the Welsh Development Agency case seems to me to point to the conclusion that it should not be extended.[32]The rule as formulated is restricted to cases in which the servant is acting in good faith within the scope of his employment. It may be that this means that a servant who personally acts in bad faith is outside the rule, whether he is acting within the scope of his employment or not. Or it may be that the requirement of good faith applies only to the question whether the servant believed that he was acting within the scope of his employment. The precise limits of the rule are not, in my judgment, suitable for determination on an application for summary judgment in advance of the findings of fact that would eventually be made at trial. If the first of these formulations is correct, then if Mr Sprecher and Ms Sanghvi are found at trial to have known that the charges were false and baseless, it could not be said that they were acting in good faith. But, even if the second and more restricted formulation is correct, if it were to be found at trial that Mr Sprecher and Ms Sanghvi knew that they were participating in a disciplinary process based on allegations that they knew to be false and baseless, it seems to be at least open to question whether they could have thought that doing so was within the scope of their employment or authority. I am not therefore prepared to give summary judgment against Mr Reeves on this part of the claim.

Conspiracy

[33]There are two allegations of conspiracy: i) An allegation that Mr Sprecher and Ms Sanghvi conspired together to injure Mr Reeves by unlawful means, namely the conduct that brought about Mr Reeves’ constructive dismissal and ii) An allegation that Mr Sprecher and Ms Sanghvi conspired together to injure Mr Reeves by unlawful means, namely threatened breaches of his overall agreement with Mr Sprecher. The threatened breaches of this agreement are the alleged threats to dilute Mr Reeves’ shareholding in PTM.[34]The first of these alleged conspiracies overlaps with the claim pleaded as the tort of inducing a breach of contract. Mr Higham did not suggest that there were any additional grounds on which this claim should be dismissed if the claim for inducing a breach of contract were not dismissed. Since I have decided not to dismiss summarily the claim for inducing a breach of contract, I will not summarily dismiss this claim either.[35]The second allegation of conspiracy is, however, different. As Mr Higham rightly submits, whereas the crime of conspiracy consists in the making of an agreement to commit a crime, the tort of conspiracy is not complete until the victim of the conspiracy has suffered a loss. That is not to say that the court is powerless to restrain a potential conspiracy by injunction before any loss has actually been suffered. But no injunction against the alleged conspirators (as conspirators) is claimed in this case. All that is claimed are damages. It is not (and cannot be) alleged that Mr Reeves has suffered loss as a result of the threat of a breach of his agreement with Mr Sprecher. Only an actual breach would have (or might have) that result. Accordingly, in my judgment the second allegation of conspiracy discloses no cause of action; alternatively has no real prospect of success. I therefore strike out or dismiss that claim.

Partnership

[36]Mr Reeves applies for permission to amend the Particulars of Claim to allege that the agreement between him and Mr Sprecher amounted in law to a partnership. Consequent upon this amendment Mr Reeves wishes to claim a dissolution of the partnership. Mr Higham opposes the amendment on the ground that the facts alleged cannot, in law, amount to a partnership.[37]Paragraph 15A of the Particulars of Claim as proposed to be amended pleads:
“The relationship between Mr Sprecher and Mr Reeves was in fact that of partners in that they carried on the business of holding their interests in the Platinum entities in common for profit. Mr Reeves will rely on the following facts and matters: (1) Mr Reeves and Mr Sprecher agreed that they would each be entitled to take an equivalent share of profits generated by the Platinum entities and/or PCM and PTM and for that purpose that the profits of those entities and/or PCM and PTM would be pooled; (2) PCM and PTM were until his dismissal managed as a group equally by both Mr Sprecher and Mr Reeves; (3) The shares in companies formed with capital or funds provided by PTM or PCM were issued directly to Mr Reeves and Mr Sprecher in the same manner as profits were shared: (i) Mr Reeves owns 49% of the issued shares of Platinum Wealth Management Ltd incorporated in 2001 and Mr Sprecher owns 49%; (ii) Mr Reeves and Mr Sprecher each own 50% of the issued shares of Platinum Property Partners Ltd incorporated in March 2004 (4) Mr Reeves and Mr Sprecher agreed that in the event that the Platinum business was sold or transferred or ownership altered (and it was not otherwise mutually agreed between Mr Sprecher and Mr Reeves) Mr Reeves would continue to have the same rights in the successor business as he did in respect of P; (5) Mr Sprecher on numerous occasions in discussions with others referred to Mr Reeves as his business partner.”
[38]The legal definition of a partnership for the purposes of English law is that contained in section 1 of the Partnership Act 1890. It says:(1) Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.(2) But the relation between members of any company or association which is— (a) registered as a Company under the Companies Act 1862 or any other Act of Parliament for the time being in force and relating to the registration of joint stock companies; or (b) formed or incorporated by or in pursuance of any other Act of Parliament or letters patent, or Royal Charter. . . (c) . . .: is not a partnership within the meaning of this Act.” is not a partnership within the meaning of this Act.”[39]Mr Higham submitted that the mere fact that two persons agree to hold shares in a company does not amount to the carrying on of a business. The business is carried on by the company; not by the individuals. The same applies even where they agree to hold shares in a multiplicity of companies. Nor does it make any difference if they agree to share distributions from the companies equally. Thus, he submitted, the existence of the companies and Mr Reeves’ and Mr Sprecher’s respective shareholdings in them were fatal to the contention that there was a partnership. All that they had done was that they had entered into a shareholders’ agreement.[40]I do not consider that the position is as clear-cut as Mr Higham suggests. The fourth of the matters on which Mr Reeves wishes to rely, points away from the conclusion that the agreement was no more than a shareholders’ agreement. It was a provision apparently intended to have a life that extended beyond the particular corporate vehicle through which the business was to be carried on. The law is summarised in Lindley and Banks on Partnership (18th ed. para. 2-26) as follows:
“Where two or more persons are preparing to set up a company and intend to become members of the company after its formation, they will not be regarded as partners if this is their only business association. Admittedly they may share a common object which is, ultimately, the acquisition of profit, but their immediate object is the formation of the company. On the other hand, persons who together carry on the business of promoting companies, with a view to making profits therefrom will unquestionably be partners.” (Emphasis in original)
[41]On which side of the line the agreement between Mr Reeves and Mr Sprecher falls will, in my judgment, depend on the facts found at trial, bearing in mind that it is common ground that the agreement was partly oral and partly in writing. I do not consider that it would be right, at this stage, to hold that the amendment has no real prospect of success. Consequently, I allow the amendment.

Accounting

[42]Mr Reeves also applies for permission to amend the Particulars of Claim to allege that in breach of the agreement between him and Mr Sprecher, Mr Sprecher has received payments and benefits from the Platinum entities that exceed the payments that Mr Reeves has received. Mr Reeves alleges that the benefits that Mr Sprecher has received and which ought to be taken into account in comparing their respective receipts include benefits in kind that Mr Sprecher has enjoyed; and in particular the use of a flat in Onslow Square. He also says that in taking the account one particular problem needs to be resolved about the effect of a promissory note. The point arises in the following way.[43]It is common ground that Mr Sprecher was to provide capital for the initial costs in setting up PTM. It is also common ground that he was to be repaid his capital in priority to any sharing of profits between him and Mr Reeves. Mr Sprecher is the holder of a promissory note issued by PTM and guaranteed by PCM promising to pay a sum of money to Mr Sprecher. Mr Reeves alleges that this promissory note was issued (and backdated) at a time when Mr Sprecher had already been repaid the amount of his loan. In consequence Mr Reeves says that Mr Sprecher cannot have it both ways. Either: i) The promissory note is invalid because Mr Sprecher had already been repaid his loan at the date when the note was issued or ii) The sums previously paid to Mr Sprecher and covered by the promissory note must be treated as having been part of Mr Sprecher’s profit share rather than repayments of loan.[44]On the face of it, this seems to be a compelling position. What is Mr Sprecher’s answer to it? Mr Higham submits, in effect, that the question of the status of the promissory note is hypothetical. Mr Sprecher has not yet made a clam under the promissory note. Perhaps he never will. But it is only if and when he does make a claim under the note that its status will become a live issue. I do not accept this submission. If, as I think, Mr Reeves is entitled (or is arguably entitled) to an account of payments and/or benefits received by him and Mr Sprecher respectively under the terms of their agreement, it seems to me that all payments must be considered. Whether Mr Reeves has received more than Mr Sprecher or vice versa is a live issue. The question whether the payments covered by the promissory note were repayments of loan or something else is, in my judgment, relevant to the taking of that account. So is the question whether Mr Sprecher’s use of the flat is properly to be taken into account. I propose, therefore, to allow these amendments.

Disposition

[45]I will consider with Counsel what order I should make so as to give effect to my decisions.

Cited in 1 later judgment