Frenkel v Lyampert & Ors [2017] EWHC 2223 (Ch)

Case No HC-2015-004753[2017] EWHC 2223 (Ch)IN THE HIGH COURT OF JUSTICECHANCERY DIVISIONVenue The Royal Courts of Justice, The Rolls Building, Fetter Lane,London, EC4A 1NLDate 13/09/2017
Before
MISS AMANDA TIPPLES QC
Between
ROMAN FRENKELClaimantARKADIY LYAMPERTDefendantsDAVID BELLDefendantLA MICRO GROUP (UK) LIMITEDDefendant
Mr Alex Barden (instructed by Blake Morgan LLP) for ClaimantMiss Rachel Ansell QC and Mr Matthew Thorne (instructed by O’Melveny & Myers LLP) for First DefendantMr Paul Strelitz (instructed by Owen White Solicitors) for Second and Third DefendantsHearing Hearing dates: 20, 21, 22, 23, 26 and 28 June 2017
JudgmentMiss Amanda Tipples QC :Introduction
[1]The Claimant, Mr Roman Frenkel (“Mr Frenkel”), and the First Defendant, Mr Arkadiy Lyampert (“Mr Lyampert”), are two Russian Americans. They both live in California. They were friends and business partners for the best part of a decade until February 2010 when they fell out. That fall out has led to extensive and very acrimonious litigation. First of all in California in relation to an American company called LA Micro Group Inc and, more recently, in this country when Mr Frenkel issued these proceedings claiming a 25.5% shareholding in the Third Defendant, a company called LA Micro Group (UK) Limited. In this judgment I shall refer to the American company, LA Micro Group Inc, as “Inc” and LA Micro Group (UK) Limited as “the UK Company”.[2]In short, I have decided that Mr Frenkel’s claim to a 25.5% shareholding in the UK Company must fail. The agreement to establish the UK Company was made between Inc and Mr David Bell, the Second Defendant (“Mr Bell”), and the agreement was that the shares in the UK Company would be held as to 51% by Inc and as to 49% by Mr Bell. There was no agreement between Mr Frenkel, Mr Lyampert and Mr Bell in the terms alleged by Mr Frenkel, and there is therefore no basis on which he can claim a personal entitlement to shares in the company, let alone a 25.5% shareholding.[3]Before I explain in detail my reasons for reaching this conclusion it is necessary to say something first all about the UK Company, then the claim itself, and the proceedings in California. Turning first to the UK Company.

The UK Company

[4]The UK Company is private limited company incorporated under the Companies Act 1985. It was incorporated on 27 April 2004 as Windbell Investments Limited (company number 5113241) and, on 11 August 2004, Windbell Investments Limited resolved to change its name to that of the UK Company.[5]The memorandum of association provides that the UK Company’s objects are, amongst other things, to carry on business as a general commercial company, and that the share capital is £1,000 divided into 1000 shares of £1 each. The UK Company’s principal activity is the sale of computer products. The articles of association incorporate Table A in the Schedule to the Companies (Table A to F) Regulations 1985 as amended by the Companies (Tables A to F)(Amendment) Regulations 1985, subject to certain specified additions, exclusions and modifications.[6]On 27 April 2004 one ordinary £1 share in the UK Company was issued to Mr Bell. On 1 July 2004 Mr Bell was appointed as a director and secretary of the UK Company. The other director was A1 Company Services Ltd, which resigned on 17 December 2004. Mr Lyampert was appointed as a director of the UK Company on 3 August 2004. The UK Company’s registered office was originally c/o Martin & Fahy, Suites 2 & 4 Dudley House, High Street, Bracknell, Berkshire. Martin & Fahy were Mr Bell’s accountants.[7]In 2008 or 2009 a further ordinary £1 share in the UK Company was issued to Mr Lyampert, and the issue of that share appears in the UK Company’s annual return for the period ended 27 April 2009. The actual date on which this share was issued to Mr Lyampert is unknown.[8]For the period ended 30 April 2005, the UK Company’s turnover was £290,396 and the profit on ordinary activities before taxation was £48,517. By the period ended 30 April 2009, the UK Company’s turnover and net profit before tax had increased to £1,232,284 and £107,762 respectively and, according to the draft accounts, the UK Company had a turnover of £13,093,166 for the period ended 30 April 2015 and a profit on ordinary activities before taxation of £856,766. Hence this dispute.

The claim

[9]The claim form was issued on 13 November 2015 and, on 23 November 2015, Mr Frenkel was given permission to serve Mr Lyampert in California. The proceedings were served on Mr Bell’s solicitors on 18 November 2015, and Mr Bell’s defence was served on 21 March 2016. The UK Company was served at its registered office in November 2015.

Mr Frenkel’s statement of case

[10]Mr Frenkel’s claim is for specific performance of an oral agreement made in 2004. Given that Mr Frenkel was not present when the agreement was made, it is important that I set out the terms of the alleged agreement. The allegations contained in the Particulars of Claim are that: “[4.] In late 2003 and/or early 2004 there were discussions between Mr Frenkel, Mr Lyampert and Mr Bell about setting up a UK arm of Inc in which all three would be shareholders and directors. [5.] Later in 2004 Mr Lyampert, together with Mr Alex Gorban [(“Mr Gorban”)], a consultant who ran much of the day-to-day business of Inc, flew to the United Kingdom to meet with Mr Bell and to negotiate a deal with him on behalf of Mr Frenkel and Mr Lyampert. [6.] It was agreed orally between Mr Bell and Mr Lyampert (acting on behalf of himself and Mr Frenkel) that Mr Bell would cause a company to be incorporated in England and Wales, for the purpose of running a UK arm of Inc. It was agreed (“the Agreement”) that: [6.1] The Company would have three directors, who would be Mr Bell, Mr Lyampert and Mr Frenkel. [6.2] The Company’s issued share capital would be owned 49% by Mr Bell, 25.5% by Mr Lyampert and 25.5% by Mr Frenkel. [6.3] The Company would pay dividends as 50% to Mr Bell, 25% to Mr Lyampert and 25% to Mr Frenkel (or to their nominees from time to time). [7.] Mr Frenkel had agreed with Mr Lyampert in advance of Mr Lyampert flying to the UK that the proposal would be put to Mr Bell in these terms. On his return Mr Lyampert informed Mr Frenkel that Mr Bell had agreed to the proposal. However, Mr Lyampert told Mr Frenkel (incorrectly) that for Mr Frenkel to become the registered owner of his shares both Mr Lyampert and Mr Frenkel would need to be in the UK to sign relevant documents. [8.] Pursuant to the Agreement, Mr Bell either caused the [UK] Company to be incorporated, or on or before 1 July 2004 caused its incorporator, Temple Secretaries Limited, to transfer the sole ordinary share of £1 to him, and himself to be appointed as a director…” [6.1] The Company would have three directors, who would be Mr Bell, Mr Lyampert and Mr Frenkel. [6.2] The Company’s issued share capital would be owned 49% by Mr Bell, 25.5% by Mr Lyampert and 25.5% by Mr Frenkel. [6.3] The Company would pay dividends as 50% to Mr Bell, 25% to Mr Lyampert and 25% to Mr Frenkel (or to their nominees from time to time).[11]It is for Mr Frenkel to prove, on the balance of probabilities, that an oral agreement was made in the terms he has alleged. In any event, no share in the UK Company was issued to Mr Frenkel and he was not appointed as a director of the UK Company.[12]Based on his pleaded case, Mr Frenkel claims that he is entitled to the following relief, namely:a. specific performance of the Agreement (as defined in paragraph 6 of the Particulars of Claim) by procuring that he be issued with 25.5% of the issued share capital of the UK Company;b. further or alternatively, rectification of the UK Company’s share register pursuant to section 125 of the Companies Act 2006;c. further or alternatively, a declaration that Mr Bell and Mr Lyampert hold the 2 issued ordinary shares in the company on trust as to 25.5% for Mr Frenkel;d. further, specific performance of the Agreement (as defined in paragraph 6 of the Particulars of Claim) by procuring that Mr Frenkel be appointed a director of the UK Company;e. further, an account or inquiry as to the amount of dividends paid by the UK Company to date and the amount payable to Mr Frenkel;f. compound interest in the equitable jurisdiction of the Court, further or alternatively interest pursuant to s.35 of the Senior Courts Act 1981;g. costs.[13]There is no claim for “further or other relief”, but that is not surprising in the light of CPR Part 16.2(5) (see also Civil Procedure (2017), Vol 1 at 16.2.2 (p. 566)). I mention that because, in the course of his closing submissions, Mr Barden, Counsel for the Claimant, said he placed reliance on CPR Part 16.2(5) if I decided that Inc was a party to the oral agreement made in 2004, rather than his client personally. I shall return to this point at the end of the judgment.[14]In relation to the relief of specific performance sought, the Particulars of Claim do not refer to any of the provisions in the UK Company’s articles of association in relation to the issue of shares or indeed any steps necessary to procure the issue of a 25.5% shareholding or appoint a director. I raised this with Mr Barden in opening, but he did not seem to regard this as a matter of particular concern.[15]At the CMC, and in correspondence in September 2016, Mr Frenkel maintained that this claim was worth £375,000 in respect of his alleged shares in the UK Company, together with £258,000 in respect of unpaid dividends. In a letter dated 22 November 2016 Mr Frenkel’s solicitors agreed that the pecuniary value of their client’s claim was about £633,000 plus interest.

The key issues

[16]There is no dispute between the parties that in or about August 2004 there was an oral agreement to establish the UK Company, and that Mr Bell should have 49% of the shares in the UK Company. However, what is in issue, and what is at the heart of this case, is who were the parties to the agreement, and who was to own the 51% shareholding in the UK Company. The issues are (as the parties have agreed):a. Was the agreement to establish the UK Company between(i) Mr Bell, Mr Lyampert and Mr Frenkel? (as Mr Frenkel alleges);(ii) Mr Bell and Mr Lyampert only? (as Mr Lyampert alleges);(iii) Mr Bell and Inc? (as Mr Bell alleges).b. Was the 51% shareholding in the UK Company to be owned by: (i) Mr Frenkel and Mr Lyampert in equal shares? (as Mr Frenkel alleges); (ii) Mr Lyampert alone? (as Mr Lyampert alleges); (iii) Inc? (as Mr Bell alleges).[17]The Amended Claim Form and Particulars of Claim do not seek any relief on the part of Inc, namely that Inc should be registered as a 51% shareholder of the UK Company or indeed any form of declaration that Mr Lyampert holds the share in his name on trust for Inc.

The Defendants’ cases

[18]Mr Lyampert’s case is based on the positive assertion that he agreed with Mr Bell that they would own the UK Company 51%-49%, with Mr Bell owning 51%. Mr Lyampert says he offered Mr Frenkel the opportunity to participate in the formation of the UK Company but “Mr Frenkel categorically refused to do so: he did not wish to be a shareholder or director of the [UK] Company, and declined to participate in any way in its formation” (paragraph 18 of Mr Lyampert’s Defence). Mr Lyampert also said that the arrangement between the parties was in fact a collaboration between five different parties, namely Mr Bell, Mr Frenkel, Mr Lyampert, Inc and the UK Company, by which they would work together on the following terms:
“[16.1] The [UK] Company and Inc would each forgo any mark-up or individual profit when supplying equipment/hardware to each other and would instead supply equipment to each other priced at or near cost. [16.2] The [UK] Company and Inc would provide such equipment/hardware to each other on mid- to long-term credit. [16.3] The two companies and their shareholders would then regularly reconcile the amounts they owed for equipment and the profits generated from onward sales. [16.4] All profits from onward sales (ie profits generated pursuant to the Collaboration Agreement) would then be divided in a ratio of 25:25:50 as to Frenkel: Lyampert: Bell (to be distributed to them through the companies or otherwise). [16.5] This arrangement would continue for as long as the relevant parties consent to its continuation.”
[19]These are the terms which Mr Lyampert defined in his Defence as “the Collaboration Agreement”.[20]Mr Bell’s defence sets out that “Mr Gorban and [Mr Lyampert] negotiated with [Mr Bell] about the viability and/terms of creation of [the UK Company], expressly on behalf of Inc, which [Mr Bell] understood was owned equally by Mr Frenkel and [Mr Lyampert]” and “it was agreed that [the UK Company] was to be owned 49% by Mr Bell, and 51% by Inc” (paras 6 and 7(d) of Mr Bell’s Defence).[21]In 2011 Mr Frenkel sought to introduce his claim to shares in the UK Company into the proceedings he had commenced against Mr Lyampert in California. I now need to briefly explained what happened in relation to those proceedings.

The Californian Claims

[22]On 8 February 2010 Mr Frenkel dissolved Inc by giving notice to Mr Lyampert. The dissolution of Inc has given rise to extensive litigation between Mr Frenkel and Mr Lyampert and others in the United States. Mr Frenkel commenced proceedings in the Superior Court of California, County of Los Angeles against Mr Lyampert. There was also a cross claim, and the action became an action for damages and an accounting between “two former 50% owners of Inc, a computer equipment company that had a substantial on-line presence”. I shall refer to these proceedings, which had case numbers BC434040 and BC434901 and were consolidated, as “the Californian Claims”.

Decision: 11 January 2017

[23]The Californian Court handed down the final version of its decision in the Californian Claims in the “Revised Statement of Decision” dated 11 January 2017. The judgment is dated 22 February 2017 and provides that:
“This consolidation action came on regularly for court trial in two phases, with the first phase tried between October 29, 2014 and December 15, 2014 and the second phase tried between April 29, 2015 and June 12, 2015 before the Honourable Stephen J Kleifield… As set forth in the statement of decision and related proceedings, Roman Frenkel prevailed against Arkadiy Lyampert and established a restitutionary obligation of $4,305,753.33 due from Arkadiy Lyampert to the dissolved corporation LA Micro Group, Inc. On the cross-claims, Cross-Defendants Medhi Ghazi Tabatebei, Gal Greogry Lis, Boris Pochtar, Alex Gorban, Design Creator Inc, IT Creations Inc, and Roman Frenkel prevailed against Cross-Claimants Arkadiy Lyampert and LA Micro Group Inc. Consolidated plaintiff Design Creator Inc prevailed against LA Micro Group Inc on its breach of contract claim against the dissolved corporation. As a result, consistent with those findings and pursuant to the Court’s power pursuant to Corporations Code Sections 1804 and 1808 and its general legal and equitable discretion to fashion adequate remedies, Lyampert shall pay the sum total of $2,263,376.67, allocated and payable as follows: (1) $221,000 to Design Creator Inc, as a creditor of LA Micro Inc, entitled to payment from any corporate assets before any shareholder may receive or retain such assets, and (2) $2.042,376.67 to Roman Frenkel, on account of Frenkel’s 50% interest in any remaining assets due from LA Micro Inc…”
[24]Mr Lyampert therefore lost in the Californian Claims and was ordered to pay Mr Frenkel over US$ 2 million. I am told that this judgment has now been appealed by Mr Lyampert.[25]In the course of the Californian Claims Mr Frenkel, Mr Gorban and Mr Lyampert all gave evidence in relation to the dissolution of Inc and other matters. In the papers before me Mr Frenkel’s depositions are dated 25 February 2011 and 13 May 2011. Mr Gorban’s depositions are dated 10 June 2010 and 9 September 2010 and he gave evidence to the court on 6 May 2015. Mr Lyampert’s depositions are dated 10 and 16 April 2014. These three gentlemen therefore have experience of giving witness evidence in the Californian Claims.

Mr Frenkel’s claim in relation to the UK Company

[26]On 19 January 2011 Mr Frenkel emailed Mr Bell in which, amongst other things, he attached a document entitled “Declaration of Dave Bell” with the instructions “Please review the attachment, sign, and return via this email …”. There was another email below it which appeared to record that the declaration had been sent to Mr Bell some months earlier on 14 May 2010, but Mr Bell had no recollection of receiving this earlier email. The declaration was apparently dated May 2010 and included at paragraph 4 the following statement:
“I Dave Bell, declare the following: … (4) At the time I opened L.A. Micro U.K. Ltd, 51% of all issued shares were prescribed/issued to Arkadiy Lyampert (which he is splitting with Roman Frenkel based on a 25.5% to Arkadiy Lyampert and 25.5% to Roman Frenkel) and 49% of the shares were issued to me.”
Mr Bell said this was the first time Mr Frenkel made him aware that he was claiming an entitlement to a 25.5% shareholding in the UK Company. Mr Bell refused to sign the declaration because he said its contents were not true, and he wanted to avoid getting drawn into the “feud” between Mr Frenkel and Mr Lyampert.[27]On 6 April 2011 Mr Frenkel notified Mr Lyampert that he intended to amend the Californian Claims to add a new cause of action for declaratory relief in relation to the ownership of the UK Company. Four months later on 11 August 2011 Mr Frenkel issued his application to amend his claim to add a tenth cause of action for “a declaration of the rights and interests of [Mr Frenkel] and [Mr Lyampart] in and to the 51% ownership in [the UK Company] claimed by Mr Lyampart”. That application was dismissed by the Californian Court on 2 September 2011. The “tentative ruling” given by His Honour

Judge Steven J Kleifield, a Judge of the Los Angeles Superior Court, explained that:

“… The Plaintiff [Mr Frenkel] has not satisfactorily explained why the amendments are necessary and proper, when the facts giving rise to the amended allegations were discovered, and the reasons why the request for the amendment was not made earlier… Amendment at this late stage would almost certainly cause a continuance of the trial date, would trigger a round of attacks on the amended complaint, and would add to the expense of this litigation, which would prejudice the defendants [Mr Lyampert and others]. Also it is doubtful that the proposed tenth cause of action “relate[s] to the same general set of facts” as set forth in the complaint …; while the proposed tenth cause of action alleges the existence of a dispute between the plaintiff and defendant Lyampert, it appears to be a dispute concerning an entity separate from the one which has been the subject of this ongoing litigation.”
[28]This particular ruling was not appealed by Mr Frenkel.[29]On 17 February 2012 Mr Bell gave evidence in the Californian Claims. He did so in the US. Mr Bell said he attended because he had been asked to do so by Mr Frenkel, and had been threatened with a subpoena if he did not do so. Mr Bell was asked about the ownership of the UK Company, and the evidence he gave is something I will deal with later in this judgment.

The witnesses and the assessment of their evidence

[30]The factual findings the Court is required to make in this case concern an oral agreement made 13 years ago. In relation to that agreement, the following points are important:a. Mr Frenkel was not present, whether in person or by telephone, when the agreement was made. The only people present were Mr Lyampert, Mr Gorban and Mr Bell.b. There are no contemporaneous documents recording the terms of what was actually agreed in August 2004. The only documents which do exist from August 2004 are the Form 288a appointing Mr Lyampert as a director of the UK Company on 3 August 2004 and the bank mandate signed on 9 August 2004.c. It is necessary to consider whether the witnesses can actually remember what happened 13 years ago and, to the extent they can recall what happened, whether that recollection is, or is likely to be, true. This is particularly difficult to assess in this case as there no contemporaneous documents recording or evidencing what was or what was not agreed, and everything happened a very long time ago.d. The arrangements in place after August 2004, and which took effect between the parties in the five years or so before there was any dispute between them, may shed some light on what was actually agreed in August 2004. However, as Counsel rightly reminded me, I need to be cautious in considering the “post contract actions of the parties” (and, in the context of an oral agreement I was referred to Brian Royal Maggs v Marsh [2006] EWCA Civ 1051 at paras 24 to 26). However, in terms of documents there was hardly anything to go on in the period August 2004 to 2010.e. Given the nature of the dispute, and that Mr Frenkel and Mr Lyampert each claim to be entitled to the shares in their own right, the evidence of each of them is likely to be self-serving.f. In so far as there was any “neutral” witness before the Court, that was Mr Bell. He is, and always has been, a shareholder in the UK Company and he was not claiming any additional interest in the UK Company. The only other witness was Mr Gorban, who is a very close friend and business partner of Mr Frenkel.[31]I heard evidence from four witnesses. First from Mr Frenkel and then from Mr Gorban. Mr Lyampert gave evidence, and did not call any other witnesses. Mr Bell gave evidence on his own behalf and on behalf of the UK Company. The evidence in chief of all of these witnesses was contained in witness statements, which they were then cross-examined on.[32]In the circumstances I have identified it is plain that I have to form a view as to the credibility of the witnesses, and decide which of the evidence I have heard is, after such a long passage of time, actually reliable and most likely to be true. In closing I drew Counsels’ attention to the observations, or warnings as to evidence, made by Peter Smith J in EPI Environmental Technologies Inc v Symphony Plastic Technologies plc (Practice Note) [2005] 1 WLR 3456, at 3470H-3471C. The judgment in that case contains a summary of well known judicial observations designed to assist trial judges in how to arrive factual conclusions and which I have had regard to. Having summarised the position, Peter Smith J added this:
“[74.] I add a few of my own precautions. (i) First, it is essential to evaluate a witness’s performance in the light of the entirety of his evidence. Witnesses can make mistakes, but those mistakes do not necessarily affect other parts of their evidence. (ii) Second, witnesses can regularly lie. However, lies themselves do not necessarily mean that the entirety of that witness’s evidence is rejected. A witness may lie in a stupid attempt to bolster a case, but the actual case nevertheless remains good irrespective of the lie. A witness may lie because the case is a lie. (iii) Third, I regard it as essential that witnesses are challenged with the other side’s case. This involves putting the case positively. This is important for a judge to enable him to assess that witness’s response to the other case orally, by reference to his or her demeanour and in the overall context of the litigation. A failure to put a point should usually disentitle the point to be taken again a witness in a closing speech. This is especially so in an era of pre-prepared witnesses statements. A judge does not see live in-chief evidence, thereby depriving the witness of presenting himself positively in his case. [75.] None of the above or the helpful assistance provided by the reported authorities is necessarily determinative. All of them provide factors to enable a judge to come to a particular conclusion about the acceptance or rejecting of a particular person’s evidence.”
[33]I am quite satisfied that, of all the evidence I have heard, the most reliable is the evidence of Mr Bell, and I accept the evidence that he gave to the court. The evidence of each of Mr Frenkel, Mr Lyampert and Mr Gorban is unreliable and unsatisfactory in a number of important respects and, where there is a conflict between the evidence they each gave and that of Mr Bell, I accept the evidence of Mr Bell. I should also add that there are certain parts of Mr Frenkel and Mr Lyampert’s evidence which simply cannot be true. I now turn to each of the witnesses, and the reasons I have reached these conclusions in respect of their evidence.

The evidence for the Claimant

[34]Mr Frenkel and Mr Gorban gave evidence for the Claimant. They both speak very good English.[35]In relation to Mr Frenkel’s evidence, the obvious point is that he was not present when the agreement was made in August 2004. He therefore cannot give any evidence himself of what happened. Rather, he relies on the evidence of what he was told by Mr Lyampert and Mr Gorban, as to what happened when they met with Mr Bell in the UK in August 2004. It is therefore necessary for me to decide whether I accept Mr Frenkel’s evidence as to what he says Mr Lyampert told him in relation to what happened when he met with Mr Bell in the UK in August 2004 as being true.[36]I did not find that Mr Frenkel was a witness who was trying to assist the Court with the answers he gave. There were several occasions when he did not answer the question he was asked, on other occasions he was argumentative or very concerned to get his case across. This may be a function of the fact that he has now given evidence on more than one occasion in the Californian Claims. However, he did admit in cross-examination that he had witness training on the Friday before the start of the trial. This was at a company, which was not Blake Morgan LLP. There is certainly no suggestion that any of his legal representatives who were involved in this trial had anything to do with this training.[37]In the Californian Claims His Hon. Steven J Kleifield found that Mr Frenkel was “unquestionably secretive in his plans to leave [Inc] and to participate in the formation of ITC [Creations]. The reasons are not entirely clear. Whether it was out of embarrassment, fear, or some other reason …” (page 20, Revised Statement of Decision dated 11 January 2017). In cross-examination Mr Frenkel was asked questions by Miss Ansell QC by reference to his depositions in the Californian Claims. This showed, as the US Judge had found, that he was secretive in relation to ITC and, as Mr Barden conceded in his closing submissions, that this “caginess” was still visible in his evidence to this Court. However, as I made clear to Miss Ansell QC during the course of the trial, I was not sure that this line of questioning in relation to the depositions was necessarily going to assist me in resolving the issues in this particular case.[38]I watched and listened very carefully to Mr Frenkel when he gave his evidence. Having done so, I do not believe Mr Frenkel’s evidence about what he says Mr Lyampert told him as a result of his meeting with Mr Bell in August 2004. This is because I do not believe Mr Frenkel can actually remember what he was, or was not, told by Mr Lyampert in August 2004. August 2004 is a very long time ago and, at the time, Mr Frenkel was in a successful business relationship with Mr Lyampert through Inc. They were getting on very well and there would have been nothing particularly memorable, or remarkable, about Mr Lyampert entering into negotiations with Mr Bell on behalf of Inc, and therefore no reason for Mr Frenkel to remember the details of any discussions they had between each other.[39]Further, Mr Frenkel is not a “details man” and as long as he was making money there is nothing to show that he was interested in matters such as directorships or shareholdings. Indeed, in 2005/2006 he had no idea how many shares there were in the UK Company and the first time he made any claim to the shares in the UK Company was in a draft declaration dated May 2010, which was produced after Inc had been dissolved and his dispute with Mr Lyampert had arisen. This, of course, points to the conclusion that it is not credible that in 2004 Mr Frenkel discussed, let alone agreed, with Mr Lyampert that he personally should be entitled to a 25.5% shareholding in the UK Company.[40]It seems to me that much of what Mr Frenkel now says happened in 2004 in relation to the establishment of the UK Company is what he would have liked to have happened and cannot be true. I give one example. In his second witness statement at paragraph 13 Mr Frenkel says that:
“In late 2003 or early 2004 … Inc sold products all over the world and Mr Lyampert and I believed that a Europe office would help us secure a larger market share. Therefore, we approached Mr Bell. Mr Bell had experience in operating a company in the UK and we had had a long standing business relationship with him. Bstock Ltd [(“Bstock”)] was not doing very well and Mr Bell wanted to make more money. Mr Lyampert and I gave him that opportunity by forming a start up with a recognised name in the industry “LA Micro” at a time when he had limited resources and expenses. Inc was very successful and so this partnership was very much an interesting venture for Mr Bell, therefore it was easy to negotiate on our terms.”
[41]There is no foundation for Mr Frenkel’s evidence that Bstock was not doing very well, or that Mr Bell wanted to make more money, and “therefore” it was easy for Mr Frenkel and Mr Lyampert to negotiate on their terms. Mr Bell’s unchallenged evidence was that, in 2003/2004 Bstock was doing well, and was generating a comfortable income for him. Further, he did not have any money worries and would have been considered by many to be well off. He had lost his mother in the Lockerbie air crash and, by 2003, had received a substantial seven figure sum in compensation from the disaster.[42]In other aspects Mr Frenkel sought to exaggerate his evidence. For example, he said in second witness statement that “at all times Mr Bell and Mr Lyampert referred to and treated me as a director and shareholder of the [UK] Company at any computer shows/conferences we attended. When Mr Lyampert, Mr Bell, Mr Gorban and I attended the Hanover conference … Mr Lyampert, Mr Bell and I referred to each other as directors and shareholders of the [UK] Company” (paragraph 34). However, Mr Frenkel accepted in cross-examination that this was not correct, and when he went to a trade show with Mr Bell “we just call each other business partners”. He also accepted, somewhat tellingly, that he did not understand what the difference was “between business partner and co-owners of the company”.[43]In these circumstances it seems to me that I must approach Mr Frenkel’s evidence with considerable caution and I cannot accept his evidence unless it is undisputed, or there is other evidence which is independent to corroborate it. In reality that means I can only accept Mr Frenkel’s evidence it if coincides with the evidence of Mr Bell. This is because I do not regard the evidence of Mr Gorban as independent. Mr Gorban is Mr Frenkel’s business partner in Baseline Capital LLC and other LLCs and, as I have already mentioned, a very close friend of Mr Frenkel.[44]Mr Gorban’s recollection of the events which led up to the trip to the UK in August 2004, and the trip itself, was hazy to say the least. He could not remember whether he had spoken to Mr Bell about the new joint venture in the UK, or how it came about that he went on the trip with Mr Lyampert. It appears that the event he could remember best was attending a bank with Mr Lyampert and the signing of documents so that a bank account could be opened. He did not read the documents that Mr Lyampert signed in the UK, but took them on “good faith” from Mr Bell. However, at one point in cross-examination, he said that the Form 288a, which Mr Lyampert signed to record his appointment as a director of the UK Company, “[had] everything to do with the [UK Company] and Mr Lyampert was signing as a director, and my understanding that was also implying that he is signing for the shares of the company”. That document had nothing whatsoever to do with shares in the UK Company. Further, in his witness statement Mr Gorban asserted that “Mr Frenkel was also not present to sign the necessary documentation to register 25.5% of the shares in his name and therefore those shares were temporarily assigned to Mr Lyampert”. Mr Gorban was asked in cross-examination by Mr Strelitz how he was able to give this evidence. Mr Gorban was unable to explain where he got this understanding from. All he could really say was that he remembered people signing documents that might “pertain” to, or be related to, the shares. In these circumstances, Mr Gorban’s ability to recall what happened when he was in the UK with Mr Lyampert is very limited indeed.[45]The other point I bear in mind is that there were other aspects of Mr Gorban’s evidence which were unsatisfactory. In 2010 Mr Gorban set up a company called IT Creations Inc, which was his company. He was asked about this company in the evidence he gave in a deposition on 9 September 2010 and, in that deposition, the evidence he gave was that he reported to a Mr Boris Pochtar, who he said was the president of IT Creations Inc. In cross-examination Miss Ansell QC put to him that he could not be reporting to Mr Pochtar as IT Creations Inc was Mr Gorban’s company which was ultimately going to be in his name. Mr Gorban’s answer to that was that he was “reporting to Boris Pochtar in a sense of we were discussing things that I was doing for the company because he was in charge of finances at the time”. That answer does not make any sense. Mr Gorban was asked a straightforward question, yet he could not give a straightforward answer.[46]Mr Gorban’s evidence must also be approached with caution and I cannot accept it unless it is undisputed, or there is other evidence which is independent to corroborate it.

The evidence for the First Defendant

[47]Mr Lyampert gave evidence and he was the only witness in support of his case. Mr Lyampert’s first language is Russian. It is clear that he is capable of understanding English, but he is much more comfortable speaking in Russian and, at the PTR in May 2017, Mr Lyampert was given permission by HHJ Davis-White QC (sitting as a Judge of the Chancery Division) to give evidence and be cross-examined with the services of “an appropriately qualified interpreter”. However, before I turn to Mr Lyampert’s oral evidence at trial, I need to say something about Mr Lyampert’s witness statements.[48]Mr Lyampert served three witness statements. The first witness statement contained the evidence in support of Mr Lyampert’s case and was dated 9 March 2017. It was 38 pages long with 74 paragraphs. The second witness statement was dated 15 May 2017, and was 17 pages long with 38 paragraphs. This witness statement was filed in answer to the witness evidence served by and on behalf of Mr Frenkel.[49]Mr Lyampert’s first two witness statements were written entirely in English. They did not contain any indication that Mr Lyampert might not be sufficiently fluent in English to give his evidence in English, or indeed pay any regard to paragraph 19.13 of the Chancery Guide which provides that:
“If a witness is not sufficiently fluent in English to give his or her evidence in English, the witness statement should be in the witness’s own language and a translation provided. If a witness is not fluent in English but can make himself or herself understood in broken English and can understand written English, the statement need not be in his or her own words provided that these matters are indicated in the statement itself. It must however be written so as to express as accurately as possible the substance of his or her evidence.”
[50]Mr Lyampert’s third witness statement, dated 19 May 2017, was filed for the purposes of the PTR and in answer to “the suggestion that I do not require the assistance of an interpreter when I give my oral evidence at trial”. This statement was again written in English and Mr Lyampert’s statement explained: “I am capable, given sufficient time, of understanding written English and expressing myself. However, I struggle to follow and to understand oral conversations, especially if they involve complex matters. My spoken English is very poor. I also find it difficult to articulate myself in a clear and timely manner. This is well known to all parties in the present proceedings. For these reasons, I used an interpreter throughout the US proceedings. I have always communicated orally with my English legal advisors, O’Melveny & Myers, with the help of an interpreter. To clarify, I can generally make myself understood in broken English, and my previous witness statements have been written with the assistance of my legal advisors so as to express the substance of my evidence. I then had sufficient time to read, digest and understand the written statements… I did not think it necessary to address this point in my previous evidence as I thought this was known by all parties involved in these proceedings, and I have never understood it to be an issue until I saw Blake Morgan’s letter dated 17 May 2017”.[51]Mr Lyampert’s oral evidence was given through an interpreter. This, unfortunately, was not without incident. Mr Lyampert’s evidence started on the afternoon of Thursday 22 June 2017, and the interpreter was sworn. There was no issue between the parties that the interpreter was appropriately qualified to interpret and translate Russian, although I did ask about this before he was sworn and was provided with a copy of his CV. It became clear at the start of Mr Lyampert’s cross-examination that Mr Lyampert had been using the interpreter during the course of the trial to communicate in meetings with his solicitors. Before that Mr Lyampert had used a different interpreter, who appears to have been his daughter. At the end of the afternoon I gave the usual warning that, as Mr Lyampert was in the course of giving his evidence, both Mr Lyampert and the interpreter should not contact anyone about the case overnight, and they should not contact each other.[52]However, first thing on the Friday morning, Miss Ansell QC informed me that overnight her instructing solicitor had received an email from the interpreter in which he had set out his view about Mr Lyampert’s evidence and said this:
“From today (sic) experience, [Mr Lyampert] has to concentrate more and to disperse (sic) his attention between English and Russian. He loses the essence of the question asked.”
In the absence of both Mr Lyampert and the interpreter I discussed this development with Counsel as, on the face of the email, it gave rise to a concern about the interpreter’s independence. I decided to discharge the interpreter, and directed the First Defendant’s solicitors to find a new interpreter who had no previous connection with the case. There was no objection from Counsel to this course, and a new interpreter was found quickly. The hearing resumed on Monday 26 June 2017, with Ms Elena Khorishko, AIIC as the interpreter. There was no suggestion by Counsel that, in the circumstances, Mr Lyampert had to start his evidence again, and Mr Barden’s cross-examination picked up where he had left off on the afternoon of Thursday 22 June 2017.[53]Returning to Mr Lyampert’s witness statements, in cross-examination he was, unsurprisingly, asked by Mr Barden how he managed to put together his witness statements in English which contained expressions that Mr Lyampert did not understand. Mr Lyampert explained that his wife and his daughter had assisted him in writing these statements. He said that he spoke to his wife and daughter in Russian. However, his daughter, who is a Californian lawyer, has difficulty understanding him, as she was only two and a half years’ old when Mr Lyampert moved to the USA, and Russian was not her first language. Mr Lyampert said that the statements were then translated into English by a Mr Mogilyanskiy, who he said was a “good acquaintance” of his (and also of Mr Frenkel) and he had known Mr Mogilyanskiy since 2004 or 2005. Mr Lyampert described the process by which these two statements were prepared in these terms: “First, I explained everything to my wife, who made notes, and then after that I made telephone calls to Mr Mogilyanskiy and I explained to him in Russian what I meant, how it was, and he also made some notes”.[54]Mr Lyampert could not remember how his third witness statement dated 19 May 2017 had been prepared. During the course of his evidence I asked him to read this short statement to himself, and then explain to me in his own words what it said. He was able to do this, and I was satisfied that he understood that that statement explained that he could not give oral evidence without the assistance of an interpreter, and the reasons for that.[55]For my part, I simply do not understand why Mr Lyampert, and those advising him, did not apply at the CMC in September 2016 for the witness statement of the oral evidence he intended to rely on at trial to be filed in Russian under CPR Part 23.2 and paragraph 19.13 of the Chancery Guide. Looking at the concluding paragraph of Mr Lyampert’s third witness statement, the reason would appear to be that no one thought about it. That, of course, is not good enough. It seems to me that the manner in which Mr Lyampert’s witness statements have been prepared is deeply unsatisfactory. The content of all Mr Lyampert’s witness statements must therefore be approached with a considerable degree of caution and, before accepting what Mr Lyampert has said in these statements, it is necessary to look to see whether is any corroboration for what he has said elsewhere in the evidence.[56]In cross-examination, Mr Lyampert did, on the whole, try to answer the questions he was asked. He was at times animated, particularly if he did not agree with points that were put to him. However, he was not argumentative, or at pains to try and get particular points across and I therefore found him to be a more straightforward in his oral evidence than either Mr Frenkel or Mr Gorban. Nevertheless, given the passage of time and the problems with his evidence-in-chief, I consider that his evidence also needs to be treated with caution. However, what was interesting about Mr Lyampert’s oral evidence was that, as the cross-examination progressed, the evidence he did give in relation to his recollection of events in August 2004 did not support his own case, but corresponded with the evidence of Mr Bell and the case of the other defendants.[57]For example, in re-examination, he gave this evidence in answer to questions from his Counsel, Miss Ansell QC:
“Q: … Final Question: I think you’ve been asked, if not two, maybe three or even four, times about the deposition of Mr Bell in 2012. You’ve described Mr Bell’s answer as his “visualisation”
. I want to ask you the same question, but I want you to put yourself back in 2004, so winter 2004/beginning of 2005. Who were the owners of LA Micro (UK) at that time? A: We had two directors at the time and at the time there was only one issued share in the company. Q: Was there any agreement at that time about ownership of the company? A: We have a verbal – we had a verbal agreement that the votes would be 49 to 51 in the company. Q: Who had the 51? A: It belonged to the company, by which I mean Inc.” Q: Was there any agreement at that time about ownership of the company? Q: Who had the 51? A: It belonged to the company, by which I mean Inc.”

Q: Who had the 51?

[58]Mr Barden, Counsel for the Claimant, said these answers were of concern as Mr Lyampert had had a “sudden change of evidence (and style) over the weekend”. The evidence I have set out at paragraph 57 above was given on Monday 26 June 2017, through the new interpreter. I would agree with Mr Barden, that Mr Lyampert’s evidence certainly needs to be treated with caution for the reasons I have already identified. Mr Barden also maintains that Mr Lyampert is further discredited by the Californian Claims which he has “lost to the tune” of more than US$2 million, and gives the impression that “he will say or doing anything to stop [Mr] Frenkel getting anything.” However, if the evidence that Mr Lyampert has given is corroborated by other evidence which I do consider to be reliable, then it seems to me that I can accept it. The fact that other parts of his evidence are unreliable, unsatisfactory or untrue, does not mean, when I consider his evidence as a whole, that I should reject the entirety of his evidence.

The evidence for the Second and Third Defendants

[59]Mr Bell gave evidence on his own behalf and on behalf of the UK Company. In cross-examination Mr Bell answered the questions he was asked clearly, and he was not argumentative in his answers. His approach was entirely straightforward and he readily accepted when he could not remember something or could not recall what had happened. The closest I got to understanding what had actually happened between the parties in this case in relation to the establishment of the UK Company was from the evidence I heard and read from Mr Bell. This is perhaps not surprising given that, in relation to this dispute, Mr Bell and the UK Company are, in effect, neutral. Nevertheless, having listened carefully to Mr Bell giving his evidence, and watched him doing so, I am quite satisfied that he was trying to assist the court in the answers he gave and that he was a truthful witness. His evidence was therefore by far and away the most reliable evidence before the court and, where there are disputes between the witnesses as to what did or did not happen, I have no hesitation in preferring and accepting the evidence of Mr Bell, over the evidence of Mr Frenkel, Mr Lyampert and Mr Gorban. Findings of fact Establishment of Inc

Findings of fact

[60]Mr Lyampert and Mr Frenkel met in California in 1998 and, by 2000, they were running a small business together buying and selling computer equipment. That did not last for very long, and they parted company. However, in 2001 Mr Lyampert set up a new company called LA Micro Exchange Inc, which in about 2003 became known as Inc. The LA in the name apparently stands for Mr Lyampert’s initials, “Lyampert Arkadiy”.[61]Inc’s business was the purchase and re-sale of high end computer parts. In any event, Mr Lyampert got back in touch with Mr Frenkel and asked whether they could work together at Inc. Mr Frenkel agreed. Mr Frenkel then became Inc’s Chief Financial Officer and he owned a 50% share in Inc, Mr Lyampert owning the other 50%. Mr Frenkel and Mr Lyampert were, at that time, in their late thirties.[62]In 2001 Inc hired a young sales consultant, Mr Gorban. Mr Gorban was only twenty at the time. Within a couple of years Mr Gorban’s role in the company had substantially increased and, by 2003, he was also involved in all of Inc’s operations, including purchasing, hiring new employees, marketing, research of new products and so on.

Initial discussions with Mr Bell

[63]Shortly after Inc was set up in 2001 it started trading with an English company called Bstock, which was owned by Mr Bell. Bstock acquired end of line, discontinued or used computer hardware, which Bstock then refurbished or stripped down to parts, and resold on to customers. It was through this trading relationship that Mr Bell got to know Mr Lyampert, as it was Mr Lyampert that Mr Bell usually dealt with when selling products to Inc. By 2003 Bstock was doing well and generating a very comfortable income for Mr Bell.[64]In around the summer of 2003 Mr Bell flew to California to meet with Mr Lyampert and Mr Frenkel. They met at the offices of Inc, and the purpose of the meeting was for Mr Bell to build on the relationship with an important customer of Bstock. It was during that meeting that Mr Lyampert and Mr Frenkel expressed some interest in expanding their business overseas including into the UK and Europe. This was the only occasion that Mr Bell met Mr Lyampert, Mr Frenkel and Mr Gorban before August 2004.[65]In any event, this meeting in California led to telephone discussions, which took place over the following 9 to 12 months, whereby Mr Bell and Mr Lyampert talked about the idea of some form of “joint venture” which would enable Mr Bell to expand his trading operations in the UK, and would enable him to benefit from Inc’s name, reputation and contacts in the US. These telephone discussions took place between Mr Bell, Mr Lyampert, and Mr Gorban. Mr Frenkel was not involved in those conversations at that time. The consequence was that, before July 2004, Mr Bell and Mr Lyampert (and possibly Mr Gorban) had reached an “in principle agreement” as to how the joint venture would work. That “in principle agreement” covered the fact that Inc would be the other shareholder in the UK Company, together with Mr Bell. Indeed, this was a point that even Mr Gorban accepted in cross-examination. Mr Gorban gave the following evidence in answer to questions by Mr Stretliz:
“Q: Then looking at it from the UK side, you don’t say, do you, that what Dave Bell wanted was something that Mr Lyampert offered personally or Mr Frenkel offered personally? Would you agree with me that what Mr Bell was looking for was getting into bed with Inc? A: It’s hard for me to tell what Dave Bell wanted to do. I remember discussions about Inc owning the UK company at the time and I think those discussions were over because there were some implications in terms of foreign company owning a majority of shares in United Kingdom – in the UK company. I think that – I remember there were discussions initially – Q: When were then – sorry, you just said “initially” and I interrupted. I’m sorry. What were those discussions? What do you mean by “initially”? Before you went over the Atlantic? A: Yes. Q: Who was involved in those discussions about Inc being the majority shareholder of LA Micro Group (UK) Limited? A: I believe that was discussed with Arie [Mr Lyampert] and Dave [Mr Bell]. Q: When you say “I believe”, were you present for those? A: Yes? Q: Listening in? A: Discussion was with me, yes. I was part of every discussion. I was the centre of all the discussions in the company because I was part of every little thing that was happening inside of the company.”
Q: When you say “I believe”, were you present for those? A: Yes?

Q: Listening in?

[66]In those answers, Mr Gorban mentions the potential problem with an overseas company. However, that was an issue which arose at a date in 2008, and this was explained by Mr Bell and Mr Lyampert in their evidence. That, however, does not undermine Mr Gorban’s evidence that, at the outset, it was proposed that Inc should be involved in the ownership of the UK Company.[67]Mr Bell spoke to Bstock’s accountants Martin & Fahy about the new venture. He asked them to buy an off the shelf company, which they did on 1 July 2004 and on the same day Mr Bell was appointed as a director. Mr Bell’s evidence, which I accept, is that the company needed two directors “given the “joint venture” nature of the business between [him] and Inc and it was suggested to [him] that [Mr Lyampert] would be the second director and [he] had no problem with that”. I also accept Mr Bell’s evidence that there was never any discussion, let alone agreement, that Mr Frenkel would be appointed a director of the UK Company. Mr Bell said he was not concerned about that at all, as he was happy there would only be two directors so he could not be outvoted on decisions of the board of directors.[68]The object of the new venture was that the UK Company would buy IT hardware in the UK and sell it to Inc. The UK Company would buy IT hardware from Inc and sell it in the UK and Europe. Inc would not sell into the UK and Europe directly.

Inc’s dispute with Dell

[69]In the meantime in the spring of 2004 Dell had been in touch with Inc and had alleged that it had been selling Dell’s products in breach of its policies. Mr Lyampert did not tell Mr Bell about this, and Mr Bell’s evidence was that he was unaware of it. In evidence Mr Lyampert said that this was because, if Mr Bell had known that “[they] were having problems” with Dell, then Mr Bell would not have been interested in any joint venture with them, as he would have understood how “very serious” that was.[70]By a letter dated 9 April 2004 Dell had written to Mr Frenkel and Inc alleging that:
“[Inc] has continuously and repeatedly sold Dell products in violation of Dell’s policy for resellers…. Additionally, Dell believes [Inc] has made certain misrepresentations in order to obtain pricing more favourable to it by purchasing from a Dell’s sales segment in which [Inc] is not authorised to purchase…”
. The letter continued by saying that Dell “considers these serious violations of Dell’s policies and declines at this time to accept orders from [Inc], its employees or agents”. Dell then said that it was willing to consider activating Inc’s accounts in 3 months’ time, ie in July 2004. Inc sent this letter to their lawyer at Mann & Zarpas LLP, who then tried to make contact with Dell to discuss the matter.[71]Mann & Zarpas LLP advised Inc that it was not clear whether it would be possible to repair Inc’s relationship with Dell, and concluded by advising that: “As you have read, Mr Hull’s letter was pretty strong and Dell appears adamant in its position. In our view, in order to even have a chance at rehabilitating this business arrangement, [Inc] has to give Dell something to make this relationship better than it was before this dispute arose. Dell needs motivation to again turn on the switch. Without more, simply saying “we are sorry and we did not understand things” most likely is not going to get it …”.[72]In July 2004, Dell’s lawyers contacted Inc’s lawyers and informed them that “with the expiration of the cooling off period” Dell had decided not to reopen the business relationship with Inc. This is set out in Mann & Zarpas LLP’s letter to Inc dated 29 July 2004.[73]So that is how the position between Inc and Dell stood at the start of August 2004, before Mr Lyampert and Mr Gorban left from London to meet with Mr Bell.[74]This is important because Mr Lyampert maintains at paragraph 18.1 of his defence that:
“Mr Lyampert asked Mr Frenkel if he wanted to participate in the formation of the new Company. Mr Frenkel categorically refused to do so: he did wish to be a shareholder or director of the Company, and declined to participate in any way in its formation. In particular, Mr Frenkel did not want his name to be reflected as the owner or director of any new entities trading in IT hardware, and specifically IT hardware manufactured by Dell because he had recently agreed with Dell that he would not resell Dell equipment, and he had concerns regarding possible legal action by Dell against him.”
[75]This allegation by Mr Lyampert is at odds with the documents that are available and, in respect of Inc’s relationship with Dell, this is the one area in this case where there are some contemporaneous documents. These documents show that it was not until 2005 that Inc agreed with Dell that it would not resell any Dell equipment, and that agreement was made between Inc and Dell. It did not concern Mr Frenkel personally. In these circumstances, it is impossible for Mr Frenkel to have had a conversation with Mr Lyampert before August 2004 in the terms that Mr Lyampert has alleged, and I do not accept that any such conversation took place.

Trip to the UK

[76]Mr Lyampert and Mr Gorban arrived in the UK on about 3 August 2004. It was Mr Gorban’s first trip to the UK. Mr Frenkel did not join them, and I will need to say something about the reasons for this later. I accept Mr Bell’s evidence about what happened when Mr Lyampert and Mr Gorban were in the UK in August 2004. The purpose of the visit was to finalise the terms of the deal and to enable Mr Lyampert to sign the paperwork to become a director of the UK Company, and also to help Mr Bell set up the UK Company’s bank account which required two signatories. Mr Lyampert and Mr Gorban’s expenses in relation to the trip were paid for by Inc.[77]The discussions between these three individuals took place at a meeting at Mr Bell’s home at The Friary in Old Windsor on or shortly after 3 August 2014. Mr Lyampert’s spoken English was fairly poor, but he could understand Mr Bell and pick up what he was saying. Mr Gorban’s spoken English was very good and he assisted with translation. However, Mr Bell did not form the impression that Mr Gorban’s only role on the visit was to translate for Mr Lyampert. This was because Mr Gorban had a good technical knowledge of the products that they were planning to trade between them, and he clearly appeared to be an up and coming individual within Inc.[78]Mr Bell’s evidence at paragraph 17 of his witness statement was that:
“At our meeting we reached agreement that the UK Company would be 49% owned by me and 51% owned by Inc. I would be the sole resident UK director. Inc would provide some initial working capital by way of the supply of computer products to us without requiring immediate payment.”
Mr Bell’s oral evidence, which I also accept, was that he was clear in his mind that he was getting into business with Inc, which he knew was jointly owned 50/50 by Mr Frenkel and Mr Lyampert. He says he did not form the impression that the new company would be a joint venture between himself and Mr Lyampert alone. Further, he was quite clear in cross-examination that in his dealings with Mr Lyampert in the UK in August 2004, he was dealing with Inc.[79]In cross-examination Mr Bell was asked whether it was explicitly discussed that Inc would be the shareholder. His answer to that was that “there was hardly any discussion of who was going to be the legal shareholder” although “there was definite discussion about the shareholding, ie the figure, but not about the person or the nominee on the shareholding certificate because there was nothing issued”. I do not find this very surprising. Mr Bell had been doing business with Inc, and had built up a business relationship with Mr Lyampert and Mr Gorban as representatives of Inc. Mr Lyampert and Mr Gorban were in the UK to get the joint venture they had been discussing for many months under way and the obvious inference is that, in order to establish the UK Company and get it trading, that joint venture was between Mr Bell and Inc. Mr Lyampert and Mr Gorban came to the UK on behalf of Inc, who paid their expenses for the trip. It seems to me that it is simply unbelievable that they were attending in any other capacity. Indeed, in cross-examination, Mr Lyampert’s own evidence was that he was conducting the negotiations with Mr Bell on behalf of Inc. He was not acting on his own behalf, or indeed on behalf of Mr Frenkel. Rather, he was representing Inc, the American company which they co-owned.[80]Mr Bell was unable to explain why shares in the UK were not issued to reflect the agreed 51%/49% split. Indeed, Mr Bell’s evidence was that he did not have a share certificate himself. It seems to me that the reason for this is that no one paid any attention to this at the time, or indeed gave it any thought. Rather, the focus was to get the UK Company up and running and sort out a bank account so it could trade. Indeed, as Mr Bell wryly observed in cross-examination “shall we say paperwork isn’t particularly one of our strong points, all three of us”, “all three of us” being Mr Bell, Mr Frenkel and Mr Lyampert.[81]It was agreed that the UK Company and Inc would each supply equipment and hardware to each other without any mark-up, ie at or near cost. This would be on mid to long term credit and the UK Company and Inc would regularly reconcile the amounts one owed to the other in relation to the hardware supplied. In relation to this it was agreed that:a. All sales by Inc of products purchased at cost from the UK Company would, after deductions of local commissions on sales by Inc’s staff, be transferred back to the UK Company. However, as Mr Bell explained in cross-examination, although that was what was supposed to happen, it was rare for the “repatriation” of that profit to be made to the UK Company.b. If Inc sold hardware to the UK Company at cost and the UK Company made a profit on those sales, then those profits would remain with the UK Company.c. The UK Company’s profits on all of its business activities would be split 50/50 between Inc and Mr Bell.[82]In his witness statement Mr Bell also said this at paragraph 17: “We agreed that dividends would be split between myself and Inc. I clearly recall asking [Mr Lyampert] words to the effect of “What about Roman?” and he said in relation to distribution of dividends/profits, “give Roman half of my half”.[83]He was asked about this in cross-examination by Mr Barden, Counsel for Mr Frenkel. It was put to Mr Bell that, as he asked about “Roman”, this meant that he was dealing with the individuals in the meeting with Mr Lyampert and not with Inc. Mr Bell’s answer to that was that he was “dealing with Arie and therefore Inc” and he did not accept that, because he asked about “Roman”, that implied that he was dealing with Mr Frenkel and Mr Lyampert separately. He said that this question related to the “profit share and the payments. It was nothing to do with the shares”. I accept this evidence from Mr Bell.

Signing of documents

[84]Mr Lyampert was appointed as a director of the UK Company so that the UK Company could open a bank account. This took place on 3 August 2004 and, on the same day, he signed the Form 288a for Companies House. On 9 August 2004 the UK Company completed the bank mandate in order to open a bank account at the Nat West. The mandate was signed by Mr Lyampert, as a director, and Mr Bell as the company secretary. Mr Bell and Mr Lyampert were the authorised signatories on the UK Company’s bank account. Mr Gorban had a recollection of attending at the bank with Mr Lyampert, and sitting next to him when he signed documents. However, he could “barely remember” the Form 288a, and did not think he read it before it was signed. As for the bank mandate, it was produced during the course of Mr Bell’s evidence. Mr Bell had no recollection that the UK Company had at one stage banked with the NatWest. I was told that UK Company now banks with HSBC Plc and has done so for many years.

Mr Frenkel remained in California

[85]In his witness statement Mr Frenkel said that he was unable to attend the meeting in August 2004 with Mr Bell because “I was running Inc. I do not remember why Mr Gorban and Mr Lyampert went instead of myself but someone needed to stay in the US and run Inc.” It seems to me that the real reason that Mr Frenkel did not join Mr Lyampert and Mr Gorban on the trip to the UK is that it was unnecessary for Mr Frenkel to travel to the UK with them. Mr Lyampert and Mr Gorban were more than capable of representing the interests of Inc in their discussions with Mr Bell, and they did not need Mr Frenkel to be with them as well. The better use of Mr Frenkel’s time was therefore to stay in California. I do not accept Mr Frenkel’s evidence that he “needed to stay in the US and run Inc” and, for that reason, he charged Mr Lyampert with the responsibility of negotiating on his behalf personally in the dealings with Mr Bell in the UK. Indeed, if Mr Frenkel had wanted to travel to the UK with Mr Lyampert and Mr Gorban he could have done so. This is because there were occasions when Mr Frenkel, Mr Lyampert and Mr Gorban were all abroad at the same time, for example at the CEBIT convention in Hanover, and Inc’s business in California had continued all the same. This is hardly surprising given that it was a company with 11 or 12 staff (including Mr Frenkel, Mr Lyampert and Mr Gorban).[86]Mr Frenkel also said in his witness statement that, although he was not in the UK, he had “daily telephone conversations about Inc” with Mr Lyampert, and “on one occasion, Mr Lyampert telephoned me and said that Mr Bell had agreed the deal and that we held the majority of the shares between us. He also said that in order for me to be registered as an owner of the shares of the Company both he and I would need to travel to the UK to sign the relevant documents. I did not question this as I had no reason to doubt Mr Lyampert at the time ...”. Mr Gorban in his witness statement also says that “I cannot remember which but either Mr Lyampert or Mr Bell said that Mr Frenkel would need to be in the UK to sign the documents. My understanding was that you have to be present to sign the necessary documents to allocate shares in a company”. Both Mr Frenkel and Mr Gorban were challenged about this evidence in cross-examination on the basis it was untrue.[87]I do not accept Mr Frenkel’s evidence that Mr Lyampert told him over the telephone from the UK that Mr Bell had agreed they held the majority of shares in the UK Company between them. The most Mr Lyampert could have told Mr Frenkel, is that Mr Bell had agreed that Inc would hold the majority of the shares in the UK Company. This is because that is all Mr Bell had agreed with Mr Lyampert on behalf of Inc, and there was no reason for Mr Lyampert to lie about this to Mr Frenkel.[88]I also do not believe Mr Frenkel’s evidence that he was told by Mr Lyampert that, in order to be registered as a shareholder, he would have to travel to the UK. I do not believe that Mr Gorban was told this by either Mr Bell or Mr Lyampert. The suggestion that Mr Frenkel had to be in the UK to sign documents relating to the UK Company does not make any sense at all. Further, in cross-examination Mr Bell made it clear that he had never had a discussion in which it had been said that both Mr Frenkel and Mr Lyampert had to both be in the UK at the same time to complete documents relating to the UK Company. I accept this evidence from Mr Bell. Mr Bell described this as “actually quite a preposterous comment”. Indeed, if Mr Frenkel had needed to sign any particular documents they could have been sent to him by courier or Fedex in California for him to sign, and he could have then signed them and returned them to Mr Bell in the UK in the same way. Further, Mr Bell’s evidence was that he took documents that needed signing by Mr Lyampert to the United States, so Mr Lyampert cannot have understood that documents could only be signed in the UK. In any event, I do not believe that Mr Lyampert ever told Mr Frenkel that he had to sign documents in the UK, and that was not Mr Gorban’s understanding either. I also do not accept Mr Gorban’s evidence that between 2004 and 2010, he witnessed Mr Frenkel asking Mr Lyampert to travel to the UK with him “to sign the necessary documents”. Mr Frenkel never said this to Mr Lyampert, and it is not true.

Trading by the UK Company

[89]The UK Company did not start to trade until later in 2004. The name was changed to that of the UK Company, a name which Mr Bell said reflected “the aim of the business and the common ownership between himself and Inc”. He said that the UK Company was not a branch or arm of Inc in the UK, but was co-owned with Inc and would benefit from an association with its name which had been established over several years.[90]Thereafter, the vast majority of communications between Inc and the UK Company were between Mr Gorban on the one hand in the US, and Mr Bell on the other in the UK. These conversations were mostly about the buying and selling of products. Mr Bell also spoke to Mr Lyampert, although less frequently than he dealt with Mr Gorban, and there were only a very few phone calls between Mr Frenkel and Mr Bell. The discussions between Mr Bell and Mr Frenkel, when they took place, were principally to do with reconciling the profit figures. This took place once or twice a year and was a very broad brush exercise. There was only one very large deal where Mr Bell considered it was necessary to also speak to Mr Lyampert and Mr Frenkel, and that was in late 2004. In so far as there were any meetings between Mr Bell, Mr Frenkel and Mr Lyampert in person, these meetings were, according to Mr Bell, “very informal meetings, normally ending up in a lot of drinking”.[91]The UK Company acquired its stock from Inc initially by way of a loan until it had started to sell those products and receive payment from its customers. In 2005-2006 Mr Bell wound down Bstock, and Bstock’s business and customers were transferred into the UK Company. Mr Bell did so in return for taking a salary from the UK Company, a decision that Mr Frenkel was party to.[92]The UK Company initially retained its profits as it built up its trade. However, by 2006 it was in a position to make payments out of profits. These payments were discussed between Mr Bell and Mr Frenkel. Mr Frenkel was the Chief Financial Officer of Inc and Mr Bell said that, when he felt it appropriate to make a distribution, he discussed that with Mr Frenkel and agreed the amounts. The first payments were paid into Inc’s bank account. However, after the initial payments had been made, a 25% profit share was paid to Frekat Investments LLC (“Frekat”; Mr Frenkel’s investment vehicle, formed on 25 September 2003) and 25% of profit share was paid to EAA Investments LLC (“EAA”; Mr Lyampert’s investment vehicle, formed on 25 September 2003). Once a payment had been had been made to Frekat or to EAA, Mr Bell sent Mr Frenkel and Mr Lyampert an email confirming that the payment had been made.[93]During this time of being in business together, the relationship between Mr Frenkel, Mr Lyampert and Mr Bell had developed into a warm friendship. This is certainly evidenced by one happy photograph in the bundle, which showed all three men together at Frankfurt train station on the way to the CEBIT conference in Hanover.

Events in 2008 and 2009

[94]In 2008 or 2009 the second share in the UK Company was issued. Mr Bell’s recollection as to how this happened is set out at paragraph 29 of his witness statement. He said this:
“At some point in around late 2008 or early 2009 I recall Brian Ashworth, the accountant who dealt with us at Martin & Fahy, explaining to me that we had to allocate a second share. I cannot recall the discussion in its entirety. I recall vaguely that Brian explained that the Company had to issue a second share within six years of the incorporation. I must have told him to identify [Mr Lyampert] as the owner of the second share. I cannot recall my thinking as to why [Mr Lyampert] was identified. It maybe that I did not think a share could be owned by two people or that it could be owned by an overseas company such as Inc. [Mr Lyampert] was the other director appointed at Companies House for the [UK Company] and it may be that I suggested to Brian that [Mr Lyampert] be identified as the second shareholder, on behalf of Inc, I thought, simply because I knew him better and saw him more regularly.”
[95]In cross-examination Mr Bell said that he was told by his accountant that another share had to be issued in the UK Company. He did not give any consideration to issuing any other shares in the company in order to achieve a split of 51% and 49% between the US and UK interests in the UK Company. Rather, he “he just did what was requested of me” and, by issuing a second share to achieve a 50/50 split, thought that would be close enough. He said he could not recall why the second share had been issued in Mr Lyampert’s name, as it should have been issued to Inc. However, he said that “just due to technicalities it was issued to [Mr Lyampert] as he was the director of the business”.[96]On 3 October 2008 the UK Company was served with legal proceedings by Microsoft. Mr Bell had a very clear recollection of this as, when he arrived at the UK Company’s offices in Windsor that day, there was a High Court sheriff and solicitors on site with large boxes of paperwork. The UK Company was shut down for the day, and there were six digital forensics experts in the building until about midnight. Mr Bell explained that Microsoft alleged that he was the “kingpin” in a massive software grey importing ring. However, he had nothing to do with selling software and the issue went away about 10 days later. Nevertheless, this was an “extremely traumatic” experience which “knocked [him] sideways for months and months”. Mr Bell told Mr Lyampert and Mr Gorban about what had happened, but he did not recall discussing it with Mr Frenkel. Indeed, Mr Gorban had a clear recollection of Mr Bell “freaking out” over these proceedings by Microsoft. This was hardly surprising given that the entire future of the UK Company was put at risk and, as Mr Bell explained, he thought that UK Company was potentially exposed to expensive litigation and, as a director, he thought he could personally also be at risk.[97]By 2009 the UK Company was, according to Mr Bell, in “tough shape financially”. Sales had decreased in 2008 and Mr Bell put this down to the general economic crisis of 2008-2009. Mr Bell considered the future uncertain and thought about ending the business. However, having met with Mr Lyampert and Mr Gorban it was decided to keep the UK Company’s business going, at least for the time being at that stage.

Events in and after February 2010

[98]On the morning of 9 February 2010 Mr Lyampert spoke to Mr Bell by telephone and told him that Mr Frenkel had closed down Inc and had taken the staff with him to a new company. Mr Lyampert told Mr Bell that he was going to try and carry on with Inc as best he could. From the tone of the conversation, Mr Bell could tell that Mr Lyampert was upset and stressed by the situation.[99]Mr Frenkel also telephoned Mr Bell in February 2010. However, he did so in order to apologise for the situation with Inc. Mr Bell’s evidence is that he remembers this call as he took it outside the Duke of Connaught pub in Windsor. He discussed the UK Company with Mr Frenkel, and Mr Frenkel said “It’s your business and I want nothing to with it”.[100]This inevitably caused Mr Bell concern in relation to the UK Company as Inc was an important supplier of computer products and hardware. In those circumstances, Mr Bell was concerned whether Inc could carry on business, and meet the UK Company’s demands for products given the implications of the split between Mr Frenkel and Mr Lyampert. In order to address these issues Mr Bell flew to California and met with Mr Lyampert, who reassured him that Inc would get over this damaging time and he was very keen that the UK Company should continue to purchase from Inc. In the light of those reassurances, Mr Bell agreed that the UK Company would continue to trade with Inc, and that it would continue to source computer products from it.[101]Mr Bell also met with Mr Frenkel when he flew out to California in March 2010. They met at Mr Frenkel’s home in Calabasas and Mr Bell remembers speaking to Mr Frenkel on his patio, and Mr Frenkel’s wife Julia was present. In cross-examination, Mr Bell was asked what he saw the purpose of his meeting with Mr Frenkel to be. Mr Bell said that there were two main reasons for the meeting. First, he was extremely concerned about the money owed to the UK Company. Second, he thought he was “probably the only person that could mediate between the two guys” and he tried to do that. Mr Bell said he could remember where his conversation with Mr Frenkel took place as it was a significant conversation and, during their discussions, Mr Frenkel repeated to Mr Bell what he had said over the telephone before, namely “The company is yours. I want nothing to do with it”. The company Mr Frenkel was referring to was, of course, the UK Company.[102]Mr Frenkel disputes this. In his evidence Mr Frenkel said what he told to Mr Bell was that “I would not be involved in Inc (and therefore would not have any involvement in buying or selling stock) while Mr Lyampert was in charge”. Mr Barden put this to Mr Bell in cross-examination and suggested to Mr Bell that all Mr Frenkel was saying at the time was that he could not be any part of the management of Inc any more (ie because he could not work day-to-day with Mr Lyampert any more), but he was not talking about a shareholding interest in the UK Company. Mr Bell did not accept this and said “No, that’s not how it came across to me. The thing is you’ve got to look at it in perspective. [The UK Company] at the time was beer change to these guys. They’re very very wealthy individuals and the money they were getting out of the UK office literally was beer money. So I don’t think he had – he certainly didn’t have any visions the company would be the size it is today. I don’t think he had any vision of the company being, you know, that in 2010, so he was not interested.” In the end, Mr Frenkel said as much in cross-examination and said what he meant was “I want to be involved in Inc, not in [the UK Company].”[103]I accept Mr Bell’s evidence here as well. In March 2010, both over the telephone and in person, Mr Frenkel told Mr Bell that he no longer wanted anything to do with the UK Company, and that the UK Company was “yours”, ie Mr Bell’s. From that point on, Mr Bell understood that Mr Frenkel was not interested in anyway in the UK Company and that was the basis that Mr Bell, as a director and shareholder of the UK Company, proceeded thereafter.[104]Importantly, when Mr Bell met with Mr Frenkel in California in March 2010 Mr Frenkel never mentioned anything about being a shareholder or director of the UK Company. He never queried whether he had any status as a shareholder in the UK Company or was, or ought to be, a director of the UK Company. I also accept Mr Bell’s evidence that, on the fifteen or so occasions that he had met with Mr Frenkel, Mr Frenkel never asked him about being appointed a shareholder personally or a director in the Company.[105]The only thing Mr Frenkel did in relation to the UK Company after March 2010, was to provide a reconciliation of the profits of the UK Company and Inc for the period between 23 January 2009 and 1 February 2010. Mr Frenkel did this, and he sent the details of the reconciled profits to Mr Bell by email in January 2011.[106]Following the split between Mr Frenkel and Mr Lyampert in February 2010, Mr Bell discussed with Mr Lyampert how Inc and the UK Company should trade with each other. They agreed that rather than supplying products to each other at cost, they would supply each other with their usual margins. That meant that Inc could make a profit on the products it sold to the UK Company and the UK Company could make a profit on the products it sold to Inc. Mr Bell said he told Mr Lyampert that “the gloves were off” which meant that both Inc and the UK Company would be free to compete with each other, rather than having the US and UK/Europe as exclusive territories. In addition to that, there was no longer any pooling or sharing of profits between the UK Company and Inc. The consequence, as Mr Bell explained in cross-examination, was that “the old business model died” and, as far as Mr Bell was concerned, the “previous business relationship had completely disintegrated” and the UK Company was free to trade anywhere. The trading arrangements the parties had agreed in 2004 were therefore at an end.[107]The problem with this new agreement or arrangement was that Inc had built up a large debt with the UK Company, and Inc was struggling financially. Mr Bell chased Mr Lyampert for payment, but without success. In order to recover this money Mr Bell “clawed back” the sums owed by Inc from the 50% of the UK Company’s profits which, after the fall-out between Mr Frenkel and Mr Lyampert, he regarded Mr Lyampert as being entitled to.[108]In his witness statement Mr Bell explained:
“At some point in 2010, and it may have been towards the end of the year, I took advice from the [UK] Company’s then solicitors Charles Coleman because Arie was pressing me to pay dividends to him and wanted the full 50% not just 25%. I sought clarification because most of the previous payments had been made to Roman and Arie or their nominees equally, but now Arie was in sole control of Inc … I don’t have a note of the advice I had from John Humphreys of Charles Coleman but he basically told me that I had to pay the legal shareholder in respect of the dividends and that was Arie who according to Companies House owned 50% of the [UK] Company. I therefore took that legal advice and felt relatively comfortable that it was ok to pay Arie the 50% of distributable profits. I have note these payments were called dividends after 2010 whereas they had rarely been called that, if ever, before 2010. I would normally describe them as a draw… These were simply payments in respect of ongoing profits of the [UK] Company and were paid subject to the [UK] Company’s cashflow.”
[109]I accept Mr Bell’s evidence that from 2010 he understood Mr Lyampert was entitled to 50% of the profits in the UK Company as he was a 50% shareholder, and he was entitled to the other 50% of the profits as he owned the other 50% of the shares. That he said was “what the paperwork stated” and, as a result, there was no need to change or amend any of the documentation. He thought that, as Mr Frenkel had said he did not want anything to do with UK Company, “it was fine just to continue with the existing shareholders”. Indeed, Mr Bell’s evidence was that if Mr Frenkel “had put a claim in to his share at that stage [ie in Spring 2010], I would have probably folded the business because I would have had two warring partners which would not have been very good”. He said it was very possible that he would have wound up the UK Company and, at the time he would not have regarded that as a drastic step, because he could not have had “two warring partners or shareholders on the company” and, at that time, the UK Company was not as big as it is today. Evidence in the Californian Claims Mr Bell’s deposition: February 2012

Evidence in the Californian Claims

[110]Finally, I need to deal with the evidence that Mr Bell gave in a deposition in the Californian Claims on 17 February 2012. What was said by Mr Bell is at the heart of Mr Frenkel’s case. This is because Mr Frenkel maintains that, during the course of this testimony, Mr Bell gave evidence that Mr Frenkel is a shareholder of the UK Company.[111]In the course of his deposition on 17 February 2012 Mr Bell was questioned by Ms Amy Borland, attorney for Mr Frenkel. That evidence was given in the presence of Mr Frenkel, Mr Lyampert and their respective lawyers, and Mr Gorban was also present. Mr Bell gave the following evidence in answer to the questions he was asked:
“Q: You were a founding, I would say, member of LA Micro UK? A: Yes. Q: What form is the company? Is it a corporation – or what are the business types in the UK? A: It is called a UK limited liability company. I don’t know what it’s equivalent to over here, but it’s a limited corporation. Q: You said that it was formed in 2005, correct? A: From – yes. I may be incorrect on the year, but I’m pretty sure it’s 2005. Q: Who are the owners of LA Micro UK? A: The owners, as far as I understand it, are myself and Mr Lyampert and Mr Frenkel. The actual incorporation at Companies House in the UK, which is the legal body that holds – you file all accounts so, states that basically there are two shares allocated, one to Arie and one to myself.”
Q: You said that it was formed in 2005, correct?

Q: Who are the owners of LA Micro UK?

[112]Mr Bell says at paragraph 52 of his witness statement that:
“I have been asked why I referred to the owners as being me, [Mr Frenkel] and [Mr Lyampert] when in fact I had set the business up assuming that I was going into business with Inc. I think that is because I have never really thought about the proper words to use in relation to the business and its legalities and that as the relationship with [Mr Frenkel] and [Mr Lyampert] grew to friendship we treated each other as business partners and co-owners.”
[113]Mr Bell is a businessman and not a lawyer. He is also not a stickler for paperwork. Mr Frenkel and Mr Lyampert were the co-owners of Inc. Therefore, in layman’s terms the answer he gave in February 2012, to the question “who are the owners of LA Micro UK?” by answering “the owners, as far as I understand it, are myself and Mr Lyampert and Mr Frenkel” is not, in my view, a particularly surprising one.[114]Mr Barden cross-examined Mr Bell extensively and robustly about this aspect of his deposition. Mr Bell gave consistent answers that, as far as he was concerned, “he was getting into bed” with Inc, and that Mr Frenkel and Mr Lyampert “were Inc” and were “the two owners of Inc and therefore they are my partners”. He was absolutely clear that he was not entering into business with Mr Frenkel and Mr Lyampert as individuals.[115]Mr Bell was unshakeable on this point in cross-examination. I accept the evidence Mr Bell gave to this court that he was doing a deal with Inc. He was not doing a deal with Mr Frenkel and Mr Lyampert personally. Indeed, it seems fanciful to me to suggest that in 2004 Mr Bell would have entered into a deal with Mr Frenkel and Mr Lyampert in their individual capacities. These two men were in business together and successfully as co-owners of Inc, a successful venture in California. Further, they were getting on very well at the time. There is no reason at all, and no good reason has been identified, as to why Mr Frenkel, or indeed Mr Lyampert, would have wished to carve out their individual interests in relation to a joint venture concerning the UK Company.

Mr Frenkel’s deposition: May 2015

[116]It is also important to have regard to the evidence that Mr Frenkel gave in his deposition. In Mr Frenkel’s evidence in a deposition in May 2015 he was expressly asked “You’re not an owner of LA Micro UK; correct?”. Mr Frenkel simply answered “Correct”. Mr Frenkel had no real explanation for this in cross-examination, save to say that his attorney later corrected him. However, the transcript of the evidence he gave in his deposition, shows his US attorney asking him the leading question about what had been said the previous day, and Mr Frenkel simply confirming, “Correct”. That response did not actually amend the earlier testimony (that Mr Frenkel was not an owner of the UK Company), but merely acknowledged that Mr Lyampert was contending that Mr Frenkel was not an owner (which is not in dispute). Therefore, it would appear that Mr Frenkel conceded in the Californian Claims that he was not an owner of the UK Company. That, of course, is entirely consistent with what Mr Bell has said in his evidence in these proceedings and, in the light of the evidence I have heard, the positon as I have found it to be.

The proceedings against Mr Bell and the UK Company

[117]Mr Bell said that after February 2012 he only had the briefest contact with Mr Frenkel. He had a couple of text messages from him in 2012 and 2013 asking about dividends (but not about the shareholdings in the UK Company). On the first occasion Mr Bell asked him for his bank details which he described as a “stalling tactic”, and on the second occasion Mr Bell said he would need to seek legal advice, but did nothing further in terms of contacting Mr Frenkel. In any event, no payments were made by the UK Company or Mr Bell to Mr Frenkel or to Frekat at any time after 28 February 2010.[118]The proceedings were served on Mr Bell’s solicitors on 18 November 2015, and Mr Bell’s defence was served on 21 March 2016. That defence sets out that the agreement that was reached in 2004 was made by Mr Bell and Inc, and it was agreed that the UK Company was to be owned 49% by Mr Bell, and 51% by Inc (paragraphs 7(b) and (d) of Mr Bell’s defence dated 21 March 2016). On 10 December 2015, Owen White solicitors, served notice of acting on behalf of the UK Company, whose defence was then served on 29 January 2016. The UK Company’s defence makes it clear that “no cause of action has been pleaded against it” and that it “is prepared to abide by any order of the court”.[119]By a letter dated 31 August 2016 the Second and Third Defendants’ solicitors wrote to Blake Morgan, Mr Frenkel’s solicitors, in these terms:
“… Mr Bell believes that LA Micro Inc is the correct legal and beneficial owner of 51% of the shares and entitled to 50% of the dividends. It will not be possible for the board of directors to resolve to issue dividends to Mr Frenkel on the basis of the likely evidence of Mr Frenkel or Mr Bell. Our client and Mr Bell are making the following open offer. The board of directors of LA Micro UK have met and resolved to make this offer to your client on an open basis. (1). For the duration of the litigation and in relation to any dividends declared hereafter, the Company will withhold 50% of Mr Lyampert’s dividends and hold the corresponding funds in trust for the successful party in the litigation whether that be your client or Mr Lyampert. The court can be informed of this as a matter of fact on record. Should your client ultimately succeed against Mr Lyampert and that decision is made either without an appeal or with the time for appeal elapsing, those dividends will be paid to your client immediately on the basis that they represent 25% of the dividends due to him. However should Mr Lyampert succeed and that judgment is not the subject of a timely appeal, those sums will be paid out to him. (2). The Company and Mr Bell will agree as part of a consent order that they will proactively and promptly take all necessary steps to implement any court orders against other parties. For example, if the court rules that your client and Mr Lyampert are each 25.5% shareholders in the Company and there are still 2 shares issued at that time, the Company will issue 198 additional shares allocating them 51 to your client, 50 to Mr Lyampert and 97 to Mr Bell, thus ensuring that at that point your client and Mr Lyampert are 25.5% shareholders and Mr Bell is a 49% shareholder. (3). The Company and Mr Bell will disclose all relevant documents and records to your client and to Mr Lyampert. Mr Bell will provide a witness statement and voluntarily attend court to give evidence and be cross-examined and should the Company’s employees or accountants be required to take an active part in the proceedings and provide either disclosure or witness evidence, the company and Mr Bell will instruct them to do so. (4). These matters to be recorded in a consent order in order to stay the proceedings against the Company and Mr Bell.”
[120]That offer was never accepted by Mr Frenkel as, although in September 2016 he was prepared to accept the offer from the UK Company, he was not prepared to accept the offer from both Mr Bell and the UK Company. In cross-examination, Mr Strelitz asked Mr Frenkel why Mr Bell was a defendant to this claim. Mr Frenkel’s answer to that question was “Mr Bell can only clarify what actually happened back in 2004 … because between me and Mr Lyampert, basically there was a deadlock.” That, of course, is true. However, that clarification could have been provided in the evidence Mr Bell and the UK Company offered to provide at paragraph 3 of the open offer letter dated 31 August 2016. In these circumstances, I do not understand why Mr Frenkel chose to actively continue these proceedings against Mr Bell and the UK Company in the face of that open offer. He had nothing to gain by doing so, other than forcing Mr Bell and the UK Company to incur further legal expense.

Conclusion

[121]I have reached the clear view that:a. There were no discussions between Mr Frenkel, Mr Lyampert and Mr Bell in late 2003 or early 2004 pursuant to which it was agreed a company would be established in the UK in which they all would be individually shareholders and directors.b. Mr Lyampert flew to the UK, together with Mr Gorban, in August 2004 to meet with Mr Bell and negotiate a deal on behalf of Inc. Mr Lyampert (and Mr Gorban) were representing Inc. Mr Lyampert was not representing his own personal interests, or indeed those of Mr Frenkel.c. It was never agreed with Mr Bell that Mr Frenkel would be a director of the UK Company.d. It was never agreed with Mr Bell that Mr Frenkel would own 25.5% of the UK Company’s share capital. Likewise it was never agreed with Mr Bell that Mr Lyampert would own 25.5% of the UK Company’s share capital. Rather, the agreement made between Mr Lyampert, on behalf of Inc, with Mr Bell, was that Inc would own 51% of the UK Company’s share capital.e. There was no agreement that the UK Company would pay dividends as 50% to Mr Bell, 25% to Mr Lyampert and 25% to Mr Frenkel. Rather the agreement was that the UK Company’s profits would be split equally between Mr Bell and Inc.[122]At the end of his closing submissions Mr Barden, as Counsel for Mr Frenkel, maintained that if I determined that the agreement to establish the UK Company was made between Mr Bell and Inc, then Mr Frenkel was entitled to declaratory relief to reflect this determination. In this context Mr Barden directed my attention to CPR Part 16.2(5) which provides that:
“The Court may grant any remedy to which the claimant is entitled even if that remedy is not specified in the claim form”
. The problem with that submission is that it has been no part of Mr Frenkel’s pleaded case or indeed any of his evidence, that the agreement was made between Inc and Mr Bell. Mr Frenkel has not even pleaded this as an alternative case.[123]Mr Frenkel owned Inc 50/50 with Mr Lyampert and Inc was dissolved in February 2010, an event which gave rise to the Californian Claims. Following the breakdown of the relationship between Mr Lyampert and Mr Frenkel, Mr Frenkel disavowed any interest in the UK Company in what he said to Mr Bell in March 2010. Mr Bell accepted what he was told by Mr Frenkel, in person and over the telephone at that time, and I accept that if Mr Bell had known that Mr Frenkel claimed an interest in the UK Company, then Mr Bell would have wound the UK Company up, and would have set up a new company. It was over five and a half years later, in November 2015, that Mr Frenkel issued this claim and, in the meantime, the UK Company had become, and continues to be, very profitable. I accept what Miss Ansell QC has said in her closing submissions at para 60: “As a result of Mr Frenkel walking away from the [UK] Company and participation in its trade, Messrs Bell and Lyampert (believing themselves to be the undisputed sole two shareholders in the Company) used the [UK] Company to engage in further extensive trade, putting time and resources into making in a success. This trade would have been carried out through a completely different vehicle if Mr Frenkel had made his position clear. To allow Mr Frenkel now to re-enter the scene and take 50% of Mr Lyampert’s shareholding, past and future dividends would thus cause the latter substantial injustice and lost capital and income”.[124]In these circumstances, I do not see that Mr Frenkel, as the claimant, is entitled to any relief in respect of Inc, particularly in circumstances where I have found, as a matter of fact, that he disavowed any interest in the UK Company in March 2010, and Mr Bell continued the UK Company’s business in reliance on what he was told by Mr Frenkel in this regard. If, as Mr Frenkel now says, he can claim relief in respect of Inc, then his claim in this regard should have been set out in his statement of case and properly pleaded. That, of course, is so that Mr Lyampert and the other defendants would have the opportunity to consider, and meet the case advanced on behalf of Inc. It is not a claim that can be introduced by Mr Frenkel as an afterthought under CPR Part 16.2(5). Further, for what it is worth, I do not consider that it is a claim that is likely to succeed, given the very substantial delay in the bringing of this claim, what Mr Frenkel told Mr Bell in March 2010, and the continued operation of the UK Company in the light of that representation.[125]The claim is therefore dismissed.

Cited in 5 later judgments