“(d) the purchaser [Enno] will offer the seller [Mr Sachdeva] to recall this deal after one year or when the seller give up the option of recall this deal will received£70,000 for the option value.”
“MEMORANDUM OF UNDERSTANDING DATED19th AUGUST 2020 . BETWEEN 1. SUNEET SINGH SACHDEVA of 28 Hurstdene Avenue, Staines-Upon-Thames, England TW18 lJQ (SS); 2. BUBBLE CITEA LTD (Company number 12055095) whose registered office is 4 Curzon Howe Road, Portsmouth, England, POl 3BZ (BCT). BACKGROUND A. BCT is currently the retail arm of Enno Capital Ltd (ECL) (company number 11887468) and a member of the ECL group of companies. B. SS and ECL entered into a Settlement Agreement dated12 August 2020 ("Settlement Agreement") under which the parties confirmed the recall of certain rights and assets to SS. C. Prior cooperation between SS and ECL was formed on the basis that ECL through BCT would increase the number of stores to 100; that the value added through this expansion will confer benefit to SS. ECL and BCT did not achieve the said expansion hence the enactment of the Settlement Agreement. D. BCT received significant benefit from SS in the use of the brand, the Guildford store and his experience. SS wishes to be compensated for the benefit gained at his expense. E. SS and BCT have entered into a Memorandum of Understanding ("MOU") to arrive at a monetary settlement for both the rights allowed by and the services rendered by SS to BCT during a period when BCT had control over certain brands. F. This MOU is to be considered a constituent part of the Settlement Agreement. AGREED TERMS 1. DEFINITIONS AND INTERPRETATION Brand fees a flat fee charged by SS to BCT of£40,000 per store for the right to use the brand, initially intended for 5 years. This fee was due at point of opening and is non-refundable. Guildford store fee was a charge agreed to gain benefit for the Guildford store, the original flagship founded and wholly owned by SS that was operated by BCT, this fee being£120,000 . Management fees are charges for services rendered by SS which include the identification, opening, training and marketing lead services.£30,000 per store, time adjusted in the fee calculation. 2. SS and BCT have agreed to the following fee structure: Management Fees Portsmouth£24,000 Basingstoke£22,000 Plymouth£18,000 Brighton£16,000 Crawley£14,000 Bromley£14,000 Store fee Guildford£120,000 Brand fees Portsmouth£40,000 Basingstoke£40,000 Plymouth£40,000 Brighton£40,000 Uxbridge£40,000 Crawley£40,000 Bromley£40,000 Total£524,000 3. Payment terms are categorized as long term until BCT has sufficient cash flow to pay SS. The debt holds a zero-coupon rate and it is anticipated to be paid within 3-5 years. 4. All parties are to cover their own respective costs. 5. Other statutory terms are covered in the Settlement Agreement and to be upheld in this MOU. This agreement has been entered into as a deed on the date stated at the beginning of it.”
“The Customer shall grant the Supplier exclusive supplier status to the Customer, with the exception of where the Supplier is unable to supply Goods under the terms of this Agreement” ii) Clause 8.1: “The sums due for the Goods shall be those as set out in the Supplier's current price list made available to the Customer either by writing or via the Purchase Order System.” [Clause 6.1 under the SGSA 2023] iii) Clause 8.4: “The sums due for the Services shall be those as set out in the Supplier's current price list from time to time, starting with the attached price list in Schedule 2.”
“The licencing arrangement mentioned herein will be applied to [Outlets] so as to ensure no differences in treatment from one licence holder to the other. However, cross charging and cost-centre operations will differ in so much as [Outlets] have staff and leases in its name. However, the aim is to provide parity of treatment of costs and revenues for both OpCo and Outlets (i.e., both will be responsible for leases, store level, employee costs – no matter whether directly under them or via Bubble City Ltd)”. v) Paragraph 1.6 states: “The licencing arrangement from Bubble City Ltd to OpCo [and Outlets] is somewhat different to many other ‘franchisors’ or ‘licensors’ in that Bubble City Ltd takes a greater hands-on approach to management matters in its licencing model so far. This is reflected in the Administrative and Management Fee outlined in paragraph 5).” vi) Paragraph 1.9 provides: “The thirty plus two stores have built up a significant debt with Jing Capital Ltd (exclusive supplier), this is due to the 120 days credit granted by Jing Capital to the Bubble Citea brand. This debt amounts to£2 million , will be apportioned back to OpCo and will continue to be paid off by OpCo. To consider: 1.9.1 This debt was originally held by OpCo in 31st July, 2022 but transferred to Bubble City Ltd. It will now be reversed. 1.9.2 It will not include any debt owed from the operation of the four stores that remain in Bubble City Ltd. 1.9.3 The aforementioned debt in31st July 2022 can be evidenced in historical accounts.” vii) Paragraph 3 set out the “Terms of Operation” including the following: “3.1 OpCo will be operating the brand under licence and will be paying a 5.25% Royalty fee for this. 3.2 Bubble City Ltd will continue to provide a robust set of services to OpCo in addition to maintenance of the brand. This will include the provision of back-office services along with marketing and robust management services. To reflect this a number of additional fees are added to recoup Bubble City Ltd costs, notwithstanding a 3% Marketing and Management Fee. 3.3 The Royalty Fee and Marketing and Management Fee outlined in paragraphs 3.1 and 3.2 are referred to as the Licence Fee when combined. 3.4 All fees mentioned herein are defined further in the Costs section in paragraphs 5 and 6. 3.5 The summary basic terms of the Licence are that it expires after a period of 5 years, where the licensor has the option to terminate with 90 days’ notice where underperformance, breach or licensor risk to the brand become apparent. 3.6 The particulars of the Licence will be outlined in a Licence Agreement between OpCo and Bubble City Ltd. This Licence Agreement will be similar (if not identical) to the Licence Agreement between Citea Outlets Ltd and Bubble City Ltd.”
“OpCo will pay a Licence Fee to Bubble City Ltd representing 8.25% of total revenues paid on a monthly basis. The Licence Fee for the prior month is calculated and invoiced in the first week of the month to be paid on or before the 15th calendar day of the month. This fee is made up of: 5.1.1 Royalty Fee of 5.25% of total revenues for the right to use the brand; 5.1.2 Marketing and Management Fee of 3% of total revenues for the marketing and management support provided by Bubble City Ltd to OpCo.” x) Paragraph 5.3 provides that Bubble City will charge OpCo for all leases, licences, service charges and business rates relating to the 30 stores, plus an administration charge of 5%. xi) Paragraph 5.4 provides that where Bubble City has paid a cost clearly attributable to OpCo, this will be invoiced to OpCo with a 4% administration charge. xii) Paragraph 5.5 states: “It should be noted that additional costs and fees are common in a franchisor to franchisee relationship, that the Bubble City Ltd cost structure to OpCo can be considered favourable to OpCo by comparison.” xiii) Paragraph 7.4 states: “Jing Capital Ltd has an exclusive supply arrangement with Bubble City Ltd meaning the majority of purchases made by OpCo (and all licensees) are to be made with Jing Capital Ltd.” xiv) I also note that paragraph 7.5 states: “In the spirit of timely compliance with the court order, the management of Bubble City Ltd has been favourable to OpCo in the apportioning of costs and debts. For the avoidance of doubt, if Mr Xie were to evaluate OpCo for the sake of taking value from it, a broader assessment of costs and debts will need to be undertaken.”
“Dear Sirs, Re: Enno Capital Ltd (“Company”) Our Client: Mr Shichuang Xie (“Client”) We recommend you consult a lawyer as the matters in discussion are highly sensitive and could bear serious legal consequences to you personally. We write further to Mr Gao’s email dated27 June 2020 addressed to our Client in reply to our letter dated22 June 2020 (“Letter”, attached here again for your information). Given that our firm is now instructed on this matter, you should address all related communications to our firm and not to our client directly. Mr Gao has stated, somewhat bizarrely, in his email that our client has acknowledged Mr Gao as a legitimate director of the Company. This is not the case. For avoidance of doubt, our Client does not regard Mr Gao’s appointment, including other actions purportedly taken on behalf of the Company (by Mr Meng), as described at paragraph 1.5 of our Letter, as valid for reasons explained in that Letter. In addition to matters detailed in our Letter, it has been drawn to our attention that our Client has lend [sic] some£1.2 million (“Loan”) to the Company since its inception. Those funds were paid directly to Mr Meng (through his connected persons including his wife and friend) and Mr Gao (and his father in law) on the strict understanding that it will be used by the Company for its business. Our Client, in return, will play a key role in the Company’s management and business affairs, as director and major shareholder. The highly prejudicial and harmful steps taken by the Company and Mr Meng since15 June 2020 , without our Client’s prior knowledge or consent, is a direct and flagrant breach of the parties understanding. Additionally, our Client is concerned that, contrary to the assurances given to him by Mr Meng and Mr Gao at the material time, not all of the Loan may have, in fact, been paid over to the Company, as originally intended but potentially misapplied by Mr Meng and Mr Gao. Accordingly, in addition to the information requested at paragraph 5.2 of the Letter, our Client now requires a full explanation regarding the application and use of our Client’s funds together with supporting bank statements from both the Company and the directors, to whom the Loan was paid, showing those monies were in fact paid over to the Company upon receipt by Mr Meng and Mr Gao (or their connected persons). For you reference, our Client paid some of the funds to: • Ms Jing Zheng – wife of Mr Meng (ICBC account number ending…) • Mr Qizheng Meng – friend of Mr Meng (ICBC account number ending…) • Mr Laichang Cai – father in law of Mr Gao (ICBC account number ending…) • Mr Yijian Gao (ICBC account number ending…) Given the orchestrated and deliberate actions by Mr Meng to remove our Client as a director and improper dilution of his shareholding, our Client now demands the immediate repayment of the Loan. We look forward to hearing from you by no later than30 June 2020 confirming that: 1. The Company will fully carry out the steps (and comply with our Client’s information request) as detailed in paragraph 5.2 of the Letter. 2. The Company will submit a written proposal to our Client in relation to the repayment of the Loan. 3. The Company will provide bank statements requested above together with a detailed explanation regarding the application of the Loan. If you do not comply with our Client’s request, our Client will have no option but to seek appropriate relief from the court given his concerns relating to possible misapplication of the Loan by Mr Meng and Mr Gao having regard to the Company’s highly prejudicial conduct. In the event that Mr Gao and Mr Meng cannot prove that the above mentioned Loan was fully paid into the Company’s account, our Chinese offices will commence relevant proceedings in China on the basis of potential commercial fraud. It goes without saying that our Client reserves his position to the fullest extent of the law.”
“In our letter dated27 August 2020 your client [Mr Sachdeva] was asked to provide disclosure relating to the alleged share transfers, which your client has refused to provide. Your client was also invited to restore the Changes made to Companies House on25 August 2020 concerning the share transfers of [OpCo] and Bubble City Ltd, which your client has refused. We do not agree with your legal analysis that our client has no basis for challenging the share transfers. This is ultimately a matter for the court. It is our client’s case that the alleged share transfers by Mr Meng was done for an improper purpose and without proper authority, and not in the best interest of [Enno]. Your client knew that Mr Meng did not have the requisite authority to effect the share transfers, knew full well that our client had been unlawfully removed by Mr Meng, possibly in collusion of other parties, as a director of the Company. Your client is acutely aware that our client has engaged our firm to vindicate his rights against Mr Meng and other parties, including against your client concerning recovery of a personal loan of£10,000 payable to our client. We note with concern the share transfers were done in August 2020 immediately after both Mr Meng and the Company were notified about our client’s potential legal redress.”
“… the explanation given by Keystone Law on behalf of the Third Respondent by near-contemporaneous letter of17 September 2020 was that the transfer of Bubble Opco was, as the points of claim have it, ‘payment of (unparticularised) services and licensing rights which the Third Respondent and Bubble City… had purportedly provided’, which was taken to include use of the Brand even though the Company had the benefit of its registration until6 October 2020 .”
“[176] In the end what these documents further evidence, as Mr Mayes submitted, is the desire of the Respondents to empty the Company of any value, and to put that value away from the Petitioner. Although the Respondents did not appreciate the point at the time, strictly it is only the Settlement Agreement which does that because it is that which, without any commercial justification, passes to the Third Respondent not just Bubble City, to which he was entitled, but Bubble Opco, to which he was not. The Memorandum of Understanding is no more than a post-transfer agreement, of no direct interest to the Company. Whether the First and Third Respondents could validly rifle that company [i.e. OpCo] is a matter outside this trial’s purlieus.”
“ICC JUDGE PRENTIS: Let me say now, that the opening words of para.176 were intended to qualify the (inaudible). In other words, while we did address the issue of trial, we addressed it really as evidence of the intent of the respondents rather than making the sort of specific findings which one would have if this were a separate claim for such a transfer, and indeed if there were such a claim there would be different parties to it as well. So, it was not intended to be comprehensive in that way, it was a matter which we addressed, I had to address it, but I think it was on that more limited basis, and therefore I think, unless you want to persuade me otherwise, those declarations cannot be justified.”
“…(b) Even where the subsequent proceedings involve a different cause of action, a decision on a particular issue which formed a necessary ingredient of the earlier cause of action and is also relevant to the subsequent cause of action is binding on the parties and cannot be reopened: Arnold (supra) at 105E. (i) The relevant question in this respect is whether resolution of the issue was a "necessary step" to the decision or a "matter which it was necessary to decide and which was actually decided, as the groundwork of the decision": see Seele Austria (supra) at [18] quoting Lord Wilberforce in Carl Zeiss Stiftung v Rayner and Keeler Ltd (No. 2),[1967] AC 853 . A mere dispute about facts divorced from their legal consequences is not an "issue" for these purposes: Fidelitas Shipping Co. Ltd v V/O Exportchleb,[1966] 1 QB 630 , 641. The test is whether the determination was so fundamental to the substantive decision that the latter cannot stand without the former: P&O Nedlloyd (supra) at [23]-[24] quoting with approval from Spencer Bower, Turner and Handley, the Doctrine of Res Judicata (3rd ed.); (ii) For this purpose, it is permissible to look not only at the judgment but also at the pleadings, evidence and, if necessary, other material in order to show what issue was actually decided: see Seele Austria (supra) at [18] quoting Carl Zeiss…”
“[132]… A little later was this: ‘…I said that I would support you to do business and I will definitely do it to the end. But I will never let go no matter who stands on the opposite side’. By the evening of 9 June it was ‘Get everything sorted out. A real start, and a brand-new stage, I hope we can work together to be successful in this business’.”
“[134] Nevertheless, [Mr Xie] says that on 11 June he asked for the return of his loan from [Enno], and told [Mr Meng] he wanted no more to do with it, because of their “non-sensical” proposals. He says he made the demand to secure his fund, and with the intent then to discuss the position. At the least the demand shows a belief that he was entitled to this money. [Mr Meng] recalls that he also said he wanted no more to do with [Enno], and acknowledged there was no purpose in his continuing to hold shares or retain office. As just noted, that was not [Mr Xie’s] position in the contemporaneous documents. It is a fillip for the Respondents’ case. [135.] The next day, presumably after some digging, [Mr Meng] discovered that [Mr Xie] was subject to a RMB5m fraud claim in China. He says he confronted [Mr Xie] with this and the lack of progress in raising finance... There is no issue with the Chinese claim which, [Mr Xie] told him, was common enough for any successful businessman…”
“[168] … A director of a company has a duty to act ‘in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole’ (seesection 172 of the Companies Act 2006 ). Where creditors’ interests are relevant, it will similarly, in my view, be a director’s duty to have regard to the interests of the creditors as a class. If a director acts to advance the interests of a particular creditor, without believing the action to be in the interests of creditors as a class, it seems to me that he will commit a breach of duty. Whether or notsection 239 of the Insolvency Act 1986 (dealing with preferences) is in point cannot be determinative…. ... [170] As for whether the transaction is binding, ordinary agency principles indicate that a company can disavow a contract which a director has caused it to enter into if (a) the director was acting in his own interests rather than those of the company, its members or (where appropriate) its creditors as a class and (b) the other party to the contract had notice of the director’s breach of duty. Thus, ‘Unless otherwise agreed, authority to act as agent includes only authority to act for the benefit of the principal’ (Bowstead & Reynolds on Agency, 19th ed., at paragraph 3–007) and ‘No act done by an agent in excess of his actual authority is binding on the principal with respect to persons having notice that in doing the act the agent is exceeding his authority’ (Bowstead & Reynolds, at paragraph 8–049). The transaction may also be open to challenge on equitable principles: ‘A contract made or act done by an agent which is, to the knowledge of the other party involved, in violation of the agent’s equitable duties to his principal entitles the principal to equitable relief against the third party’ (Bowstead & Reynolds, at paragraph 8–217). [171] The better view appears to be that, where a director has caused his company to enter into a contract in pursuit of his own interests, and not in the interests of the company, its members or (where appropriate) its creditors as a class, and the other contracting party had notice of that fact, the contract is void rather than voidable: see e.g. Bowstead & Reynolds, at paragraphs 8–067 and 8–220, Nolan [2009] CLJ 293, especially at 317-319, Heinl v Jyske Bank (Gibraltar) Ltd [1999] 1 Lloyd’s Rep. Bank. 511 and Hopkins v TL Dallas Group Ltd[2005] 1 BCLC 543 . On this basis, it is hard to see how it could matter whether the requirements ofsection 239 of the 1986 Act are satisfied. [172] Were the relevant contract not void but voidable, the applicability of section 239 would still be of no obvious significance. If restitutio in integrum were not possible, that could be an obstacle to rescission. However, the decision of the Court of Appeal in O’Sullivan v Management Agency and Music Ltd[1985] 1 QB 428 indicates that rescission may still be granted if practical justice can be achieved. In O’Sullivan, agreements obtained by undue influence were set aside even though the parties could not be restored to their original positions. Dunn LJ said (at 458): ‘This analysis of the cases shows that the principles of restitutio in integrum is not applied with its full rigour in equity in relation to transactions entered into by persons in breach of a fiduciary relationship, and that such transactions may be set aside even though it is impossible to place the parties precisely in the position in which they were before, provided that the court can achieve practical justice between the parties by obliging the wrongdoer to give up his profits and advantages, while at the same time compensating him for any work that he has actually performed pursuant to the transaction’…” ‘This analysis of the cases shows that the principles of restitutio in integrum is not applied with its full rigour in equity in relation to transactions entered into by persons in breach of a fiduciary relationship, and that such transactions may be set aside even though it is impossible to place the parties precisely in the position in which they were before, provided that the court can achieve practical justice between the parties by obliging the wrongdoer to give up his profits and advantages, while at the same time compensating him for any work that he has actually performed pursuant to the transaction’…”
“[60]… Mr Green submitted that equity applied the knowing receipt doctrine by treating corporate property as subject to a trust by analogy. Later he firmed up his analysis by submitting that a trust, with a concomitant splitting of legal title from the company’s continuing beneficial interest in the misapplied property occurred at the moment of the transfer which constituted the misapplication. Legal title passed to the transferee, but the equitable beneficial interest remained with the company. Therefore the company retained the equitable interest sufficient to support a proprietary claim to the property or its traceable proceeds, and a knowing receipt personal claim against any recipient who had received the property with notice of the misapplication, subject to any overriding of its equitable interest in the meantime. [61] I consider that Mr Green’s final submission on this issue is correct. It best fits with all the dicta summarised above [from Selangor and Belmont Finance]. First, the analysis in In re Lands Allotment speaks of the trust arising when the misapplication of company property takes place. The same analysis is also supported by Millett J in Agip (Africa) Ltd v Jackson[1990] Ch 265 , 290D—F. Secondly Ungoed-Thomas J is at pains to emphasise that this is a real trust and not just a breach of fiduciary duty treated like a breach of trust merely by analogy. Thirdly and decisively Buckley LJ implicitly recognises a continuing equitable interest remaining in the company after the transfer because of his acknowledgment that the company’s knowing receipt claim may be defeated by a recipient with a better equity. That would of course include equity’s darling…”
“[42] Knowing receipt is sometimes also called a form of ancillary liability, but it is not in my view ancillary to the liability of the trustee. Rather it is ancillary to the proprietary claim which will generally enable the continuing equitable beneficial owner to recover the trust property where it has passed into the hands of someone other than the trustee, without the equitable interest having been overreached or overridden. The personal remedy in knowing receipt comes to the rescue if the transferee then transfers, dissipates or destroys the property after learning of the breach of trust, so as to prevent the pursuit of a proprietary claim. In such a case the claimant’s equitable interest still subsisted at the time when the transferee learned of the breach of trust, so that the later transfer, dissipation or destruction of the property was a breach of the restorative and custodial duty which then bound him.”
“[57] After a full review of the criminal case law since R v Ghosh, Lord Hughes JSC [in Ivey] then stated his conclusions at paras 74—75. He said that the second leg of the Ghosh test does not correctly represent the law, and that the test of dishonesty is as set out by Lord Nicholls in Tan[1995] 2 AC 378 and by Lord Hoffmann in Barlow Clowes[2006] 1 WLR 1476 , para 10. Lord Hughes JSC continued: “When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.”
“[37] … It is unarguable that Mr Nash by his conduct assisted in the breach of the trust by Larkstore by paying away the money held by Larkstore on such trust. The question is whether that assistance was dishonest. [38] I accept that the deputy judge found Mr Nash to be an honest witness; but that has no bearing on the honesty or otherwise of his conduct under consideration. I also accept that this court should be very cautious indeed of substituting its own view of the honesty of Mr Nash’s conduct for that of the judge. But, if this court concludes that the deputy judge asked the wrong question and approached it from the wrong perspective then it is its duty to say so. [39] That is my conclusion. As I have already said, the question was whether the relevant conduct of Mr Nash in seeking to frustrate Starglade [the creditor], given that he knew that Larkstore was insolvent but otherwise had sufficient assets to pay a dividend to its creditors, was dishonest. The deputy judge never looked at that issue. He concentrated on whether payments to or security given to Glancestyle might be set aside in due course by a liquidator of Larkstore. No advice was sought or given on what Mr Nash proposed to do or did or his reasons for doing so. The deliberate removal of the assets of an insolvent company so as entirely to defeat the just claim of a creditor is, in my view, not in accordance with the ordinary standards of honest commercial behaviour, however much it may occur. Nor could a person in the position of Mr Nash have thought otherwise notwithstanding a lack of understanding as to the legal position. [40] For all these reasons I would accept the first submission of counsel for Starglade and, notwithstanding those of counsel for Mr Nash, recognise the conduct of Mr Nash in assisting the undoubted breach of trust in favour of Starglade as dishonest by the ordinary standards of honest commercial behaviour…”
“Issues of tracing the inherent value of shares in companies can arise both where existing shares are transferred and new shares are issued: (1) [not relevant]. (2) Since tracing is concerned with the identification of the value inherent in one asset in another asset, identification of that value in the other asset does not necessarily depend upon a transfer of the asset or an interest or share of the original asset. And so where a trustee in breach of trust procures that a company, with only one issued share which is owned by the trust, issues 99 new shares in the company to the trustee or a third party without any consideration being paid for the new shares, so that 99 per cent of the value of the original share is transferred into the new shares, the new shares are the traceable product of the original share owned by the trust. The position where some but inadequate consideration is paid for the new shares is less clear. Where the value of the share owned by the trust is substantially transferred into the new shares, perhaps the new shares should be treated as the traceable product of the share owned by the trust subject to a lien on the new shares of a sum equal to the amount of consideration paid for them. A proprietary claim against a third party to whom the new shares are issued will fail if the third party is a purchaser for value without notice…”
“[203]… before the issue of the new PEL shares to members of the consortium in January 2007, the master fund was the owner of one PEL share, and that, after the issue of the new PEL shares to members of the consortium, the master fund remained the owner of that PEL share. What changed was not the identity of the asset owned by the master fund, but the characteristic of that asset in relationship to the ownership of PEL. The effect of the issue of the new shares to members of the consortium was that the proportionate interest in PEL associated with ownership of that one share changed from 100% to less than 1%.... Those submissions are, if I may say so, self-evidently correct, and they are not, I think, in dispute. But they provide no answer to what (as Renova submits) is the relevant question for determination under this head: whether, consequent upon the issue of new PEL shares in January 2007, Autumn was the recipient of the traceable proceeds of property of the master fund.”
“[208] I accept Renova' s submission that the judge was correct to conclude that the value of the master fund's holding (immediately prior to the issue of the new shares) of 100% of the issued share capital of PEL can be traced into the PEL shares issued to Autumn in January 2007. In the events which happened, the position immediately before the issue of the 100 new shares was that PEL was the owner of the Faberge rights, and as the holder of the single share then in issue, the master fund was the owner of 100% of the issued capital of PEL. The position immediately after the 100 additional shares were issued was that PEL remained the owner of the Faberge rights but that the issued capital of PEL was owned as to 100/ l01 by the members of the consortium and as to 1/101 by the master fund; or, to put the point another way, substantially the whole of the value of the master fund's interest in PEL and (indirectly, through PEL) in the Faberge rights had been transferred to the members of the consortium as owners of the new shares. In those circumstances, as it seems to me, the effect of the issue of the new PEL shares was that 100/ l01 parts of the master fund's ownership of the whole issued share capital of PEL was transferred to the members of the consortium and, in particular, 25/101 parts of the master fund's ownership of the whole issued share capital of PEL was transferred to Autumn. The value of what was transferred was represented by the new shares held by Autumn and the other members of the consortium, and can be traced accordingly. As Renova points out, to hold otherwise would be to allow corporate form to defeat commercial substance. It cannot be doubted that, had the transaction been carried out (as a matter of corporate form) in a slightly different way - by subdividing the existing single share in PEL into 101 new shares and then causing the master fund (as the owner of those 101 new shares) to transfer 100 of those shares to members of the consortium - the 100 shares so transferred could be followed into the hands of the transferees and could be the subject of a proprietary claim. To deny a proprietary claim in circumstances where what is, as a matter of commercial substance, the same transaction is carried out by the issue of new shares (rather than the creation of new shares by the subdivision of an existing share) would, indeed, be anomalous.”
“[7] The principal’s right to seek an account undoubtedly gives him a right to equitable compensation in respect of the bribe or secret commission, which is the quantum of that bribe or commission (subject to any permissible deduction in favour of the agent - e g for expenses incurred). That is because where an agent acquires a benefit in breach of his fiduciary duty, the relief accorded by equity is, again to quote Millett LJ in the Mothew case, at p 18, “primarily restitutionary or restorative rather than compensatory”
“Regrettably, however, the expressions ‘constructive trust’ and ‘constructive trustee’ have been used by equity lawyers to describe two entirely different situations. The first covers those cases… where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff. A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff…. The second class of case is different. It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be ‘liable to account as constructive trustee’. Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions ‘constructive trust’ and ‘constructive trustee’ are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are ‘nothing more than a formula for equitable relief ’: Selangor United Rubber Estates Ltd v Cradock (No 3)[1968] 2 All ER 1073 at 1097,[1968] 1 WLR 1555 at 1582 per Ungoed-Thomas J.”
“[31] The essence of a liability to account on the footing of knowing receipt is that the defendant has accepted trust assets knowing that they were transferred to him in breach of trust and that he had no right to receive them. His possession is therefore at all times wrongful and adverse to the rights of both the true trustees and the beneficiaries. No trust has been reposed in him. He does not have the powers or duties of a trustee, for example with regard to investment or management. His sole obligation of any practical significance is to restore the assets immediately. It is true that he may be accountable for any profit that would have been made or any loss that would have been avoided if the assets had remained in the hands of the true trustees and been dealt with according to the trust. There may also, in some circumstances, be a proprietary claim. But all this is simply the measure of the remedy. It does not make him a trustee or bring him within the provisions of theLimitation Act 1980 relating to trustees.”
“[95] For all these reasons, I remain wholly unconvinced that Mr Davies can in principle pursue a remedy in knowing receipt against GBRK which would extend beyond the well-established principles recently restated by this court in Byers. In particular, I can see no basis for concluding that such a remedy should extend beyond pre-existing trust property transferred in breach of Mr Monks’ fiduciary duties, or that it could somehow embrace the entirety of GBRK’s business as at the date of GBR’s dissolution in October 2011...”
“… It is now clear that a receipt of pre-existing trust property is a necessary ingredient of a claim in knowing receipt, and it is not enough that a defendant has merely obtained a benefit from trust assets: see Byers at [22]…”
“English law provides no clear and all-embracing definition of a constructive trust. Its boundaries have been left perhaps deliberately vague, so as not to restrict the court by technicalities in deciding what the justice of a particular case may demand.”
“125 Power of court to rectify register (1) If a company's register of members— (a) does not include information that it is required to include, or (b) includes information that it is not required to include, the person aggrieved, or any member of the company, or the company, may apply to the court for rectification of the register…”
“125 Power of court to rectify register (1) If– (a) the name of any person is, without sufficient cause, entered in or omitted from a company's register of members, or (b) default is made or unnecessary delay takes place in entering on the register the fact of any person having ceased to be a member, the person aggrieved, or any member of the company, or the company, may apply to the court for rectification of the register.”
“If (a) the name of any person is, without sufficient cause, entered in or omitted from a company’s register of members… the person aggrieved… may apply to the court for rectification of the register”
“… It is said that any person aggrieved by any order of the Court is entitled to appeal. But the words "person aggrieved" do not really mean a man who is disappointed of a benefit which he might have received if some other order had been made. A "person aggrieved" must be a man who has suffered a legal grievance, a man against whom a decision has been pronounced which has wrongfully deprived him of something, or wrongfully refused him something, or wrongfully affected his title to something…”
“… I think they are persons aggrieved in this sense—that they are entitled to ask the Court to hear the case on the merits. They have an interest in this matter: they are not common informers—they are not persons who have nothing to do with the sauce trade, and it may well be that if they can get rid of this mark they will sell Yorkshire Relish…”
“Secondly, and even more fundamentally, equity in Bubble OpCo is worthless, as that company is heavily insolvent. In this regard, we refer you to management accounts for Bubble OpCo dated30 June 2024 , a copy of which is attached herewith. As at that date, Bubble OpCo had net current liabilities of£1,908,643 and an overall balance sheet deficiency of£817,711 . Further, Bubble OpCo owed£2,147,426 to Jing Capital Ltd. Bubble OpCo is therefore only able to carry on trading as a result of the forbearance of Jing Capital Ltd: if Jing Capital Ltd demands repayment of its debt of over£2 million , Bubble OpCo will be unable to pay, with the result that Bubble OpCo will be liable to be wound up. The conclusion that equity in Bubble OpCo is worthless is in fact entirely consistent with the evidence of your client’s own expert, Mr Donaldson, whose opinion at paragraph 1.9 of his report dated29 November 2024 is that, on the assumption that Bubble OpCo is required to pay a licence fee to use the brand name “Bubble CitTea” [sic], as at30 September 2024 , Bubble OpCo has no value [on the assumption of 53 stores]. The assumption that Bubble OpCo is required to pay a licence fee to use the brand name “Bubble CitTea” is plainly appropriate because, as found by ICCJ Prentis in the unfair prejudice proceedings and (correctly) acknowledged by your client in the current proceedings, the brand name “Bubble CiTea” is owned by Bubble City. Given that Bubble OpCo is currently a wholly-owned subsidiary of Bubble City, Bubble City allows Bubble OpCo to use that brand name under a licence. Bubble City is under no obligation to provide that licence in the future. If (despite our clients’ contentions, as set out above) the Court orders the transfer of Bubble OpCo’s entire issued share capital to your client, Mr Sachdeva, through his control of Bubble City, will have the right to terminate that licence on reasonable notice. Reasonable notice in this context means, at most, a matter of a few months – your client’s claim that reasonable notice would be as much as three years is untenable. Mr Sachdeva could therefore bring Bubble OpCo’s trading to an end at any time by terminating its right to trade under the “Bubble CiTea” brand name. Mr Sachdeva would only be prepared to allow Bubble OpCo to continue using the “Bubble CiTea” brand name on payment of an appropriate licence fee. We are confident that a court will accept these points. The suggestion that Bubble OpCo could carry on trading in the future under the control of the Claimant without paying an appropriate commercial rate for the use of a brand belonging to a third party (Bubble City) is both commercially and legally unrealistic. To summarise, therefore, Bubble OpCo’s current trading and financial position are extremely precarious. Bubble OpCo is heavily insolvent on a balance sheet basis, is only able to continue trading for so long as Jing Capital Ltd does not seek repayment of a debt of over£2 million . Moreover, Bubble City has the ability to terminate Bubble OpCo’s trading by exercising its right to terminate Bubble OpCo’s licence to use the “Bubble CiTea” brand name. Our Clients’ Offer Against the background set out above, your client is seeking to litigate for no purpose at all. Your client claims worthless equity in a company which is heavily balance sheet insolvent. Further, your client’s claims for equitable compensation and/or damages have nil value: given that equity in Bubble OpCo is worthless, your client lost nothing of value as a result of being deprived of that equity. In an effort to avoid the costs of an entirely pointless trial, our clients make the following offer (subject to contract). They are willing to transfer the entire issued share capital of Bubble OpCo (i.e. all 100 Ordinary Shares) currently held by Bubble City to your client in full and final settlement of all claims against them. Further, they offer to settle on terms that our respective clients bear their own costs. This offer is made on an open basis and will remain available for acceptance unless it is expressly withdrawn. … [reference to releases from undertakings] Conclusion By way of final point, as set out in our Re-Amended Defence, your client’s current case includes claims that Bubble OpCo is the victim of a conspiracy perpetrated by our clients. Needless to say, these claims are denied. If, however, Bubble OpCo is the victim of an unlawful means conspiracy, Bubble OpCo will need to bring claims for damages; your client, as assignee of Enno Capital has no right to bring such claims. Our clients recognise that, in offering to transfer the entire issued share capital of Bubble OpCo to your client, they will provide your client with the ability to cause Bubble OpCo to bring such claims. Again, however, we emphasise that Bubble OpCo is heavily balance sheet insolvent and is liable to be wound up on a petition presented by Jing Capital Ltd. If Bubble OpCo is wound up, it will be for the liquidator to pursue claims. Your client, as the sole shareholder in Bubble OpCo, will not receive any part of the proceeds of such claims until all creditors have been paid in full. We invite your client to consider our client’s offer carefully. If your client rejects this offer and proceeds to trial, we intend to rely on this letter as part of our clients’ submissions, both on the merits and issues of costs. Any High Court Judge will quickly conclude that your client’s claims are pointless, given that the equity value of Bubble OpCo is nil.”
“59. It is undeniable that the twin cases of Target Holdings Ltd v Redferns (supra) and AIB Group (UK) plc v Mark Redler & Co[2014] UKSC 58 ;[2015] AC 1503 have transformed (or reformed) the law about equitable compensation by the erection of counterfactuals and the use of a but-for test… 60. .. Equitable compensation is, as its label implies, about compensation for loss.”
“79 Summarising the discussion to this point, it is necessary to distinguish between (1) cases where claims are brought by a shareholder in respect of loss which he has suffered in that capacity, in the form of a diminution in share value or in distributions, which is the consequence of loss sustained by the company, in respect of which the company has a cause of action against the same wrongdoer, and (2) cases where claims are brought, whether by a shareholder or by anyone else, in respect of loss which does not fall within that description, but where the company has a right of action in respect of substantially the same loss. 80 In cases of the first kind, the shareholder cannot bring proceedings in respect of the company’s loss, since he has no legal or equitable interest in the company’s assets: Macaura and Short v Treasury Comrs. It is only the company which has a cause of action in respect of its loss: Foss v Harbottle. However, depending on the circumstances, it is possible that the company’s loss may result (or, at least, may be claimed to result) in a fall in the value of its shares. Its shareholders may therefore claim to have suffered a loss as a consequence of the company’s loss. Depending on the circumstances, the company’s recovery of its loss may have the effect of restoring the value of the shares. In such circumstances, the only remedy which the law requires to provide, in order to achieve its remedial objectives of compensating both the company and its shareholders, is an award of damages to the company. 81 There may, however, be circumstances where the company’s right of action is not sufficient to ensure that the value of the shares is fully replenished. One example is where the market’s valuation of the shares is not a simple reflection of the company’s net assets, as discussed at para 32 above. Another is where the company fails to pursue a right of action which, in the opinion of a shareholder, ought to have been pursued, or compromises its claim for an amount which, in the opinion of a shareholder, is less than its full value. But the effect of the rule in Foss v Harbottle is that the shareholder has entrusted the management of the company’s right of action to its decision-making organs, including, ultimately, the majority of members voting in general meeting. If such a decision is taken otherwise than in the proper exercise of the relevant powers, then the law provides the shareholder with a number of remedies, including a derivative action, and equitable relief from unfairly prejudicial conduct. 82 As explained at paras 34—37 above, the company’s control over its own cause of action would be compromised, and the rule in Foss v Harbottle could be circumvented, if the shareholder could bring a personal action for a fall in share value consequent on the company’s loss, where the company had a concurrent right of action in respect of its loss. The same arguments apply to distributions which a shareholder might have received from the company if it had not sustained the loss (such as the pension contributions in Johnson). 83 The critical point is that the shareholder has not suffered a loss which is regarded by the law as being separate and distinct from the company’s loss, and therefore has no claim to recover it. As a shareholder (and unlike a creditor or an employee), he does, however, have a variety of other rights which may be relevant in a context of this kind, including the right to bring a derivative claim to enforce the company’s rights if the relevant conditions are met, and the right to seek relief in respect of unfairly prejudicial conduct of the company’s affairs. 84 The position is different in cases of the second kind. One can take as an example cases where claims are brought in respect of loss suffered in the capacity of a creditor of the company. The arguments which arise in the case of a shareholder have no application. There is no analogous relationship between a creditor and the company. There is no correlation between the value of the company’s assets or profits and the “value” of the creditor’s debt, analogous to the relationship on which a shareholder bases his claim for a fall in share value. The inverted commas around the word “value”, when applied to a debt, reflect the fact that it is a different kind of entity from a share. 85 Where a company suffers a loss, it is possible that its shareholders may also suffer a consequential loss in respect of the value of their shares, but its creditors will not suffer any loss so long as the company remains solvent. Even where a loss causes the company to become insolvent, or occurs while it is insolvent, its shareholders and its creditors are not affected in the same way, either temporally or causally. In an insolvency, the shareholders will recover only a pro rata share of the company’s surplus assets, if any. The value of their shares will reflect the value of that interest. The extent to which the company’s loss may affect a creditor’s recovery of his debt, on the other hand, will depend not only on the company’s assets but also on the value of any security possessed by the creditor, on the rules governing the priority of debts, and on the manner in which the liquidation is conducted (for example, whether proceedings are brought by the liquidator against persons from whom funds might be ingathered, and whether such proceedings are successful). Most importantly, even where the company’s loss results in the creditor also suffering a loss, he does not suffer the loss in the capacity of a shareholder, and his pursuit of a claim in respect of that loss cannot therefore give rise to any conflict with the rule in Foss v Harbottle. 86 The potential concern that arises in relation to claims brought by creditors is not, therefore, the rule in Foss v Harbottle. On the other hand, the principle that double recovery should be avoided may be relevant, although it is not necessarily engaged merely because the company and the creditor have concurrent claims against the same defendant. In International Leisure Ltd v First National Trustee Co UK Ltd[2013] Ch 346 , for example, the principle was not engaged where the company and a secured creditor had concurrent claims against an administrative receiver whom the creditor had appointed, since the company could only claim in respect of any loss remaining after the secured creditor had been paid in full. 87 Where the risk of double recovery arises, how it should be avoided will depend on the circumstances. It should be borne in mind that the avoidance of double recovery does not entail that the company’s claim must be given priority. Nor, contrary to the view expressed in a number of authorities, including the decision of the Court of Appeal in the present case, does the pari passu principle entail that the company’s claim must be given priority. That principle requires that, in a winding up, a company’s assets must be distributed rateably among its ordinary creditors. The proceeds of its recovery from a wrongdoer will form part of its assets available for distribution (subject to the claims of secured and preferred creditors). But the pari passu principle does not give the company, or its liquidator, a preferential claim on the assets of the wrongdoer, over the claim of any other person with rights against the wrongdoer, even if that claimant is also a creditor of the company. In other words, the pari passu principle may restrict a creditor of an insolvent company to the receipt of a dividend on the amount which the company owes him, but it does not prevent him from enforcing his own right to recover damages from a third party, or confer on the company’s right against the third party an automatic priority. In the event that the third party cannot satisfy all the claims made against him, the position will be regulated by the law of (his) insolvency. 88 It is also necessary to consider whether double recovery may properly be avoided by other means than the prioritising of one claim over the other, such as those mentioned in paras 5—7 above. The judgments of Gibbs CJ and Brennan J in Gould v Vaggelas 157 CLR 215, at pp 229 and 258—259 respectively, raise the possibility that subrogation, in particular, may provide a solution to issues of double recovery arising in connection with creditors’ claims. That question has not, however, been discussed in the present proceedings, and I express no view upon it. 89 I would therefore reaffirm the approach adopted in Prudential[1982] Ch 204 and by Lord Bingham in Johnson[2002] 2AC 1 , and depart from the reasoning in the other speeches in that case, and in later authorities, so far as it is inconsistent with the foregoing. It follows that Giles v Rhind[2003] Ch 618 , Perry v Day[2005] 2 BCLC 405 and Gardner v Parker[2004] 2BCLC 554 were wrongly decided. The rule in Prudential is limited to claims by shareholders that, as a result of actionable loss suffered by their company, the value of their shares, or of the distributions they receive as shareholders, has been diminished. Other claims, whether by shareholders or anyone else, should be dealt with in the ordinary way.”
“… The claim was brought by the assignee of rights of action held by a company (“the shareholder”) which was both a shareholder and a creditor of a second company (“the company”), against a defendant who was a director of both the shareholder and the company. He was alleged to have sold the company’s principal assets at an undervalue to another entity in which he had an interest, rendering the company insolvent, and preventing the shareholder from recovering the debt which the company owed it. In so acting, the defendant had acted in breach of fiduciary duties owed separately to the shareholder and to the company as a director of both of them. The shareholder then sought to recover in respect of the fall in the value of its shareholding, and also in respect of the loss arising from its inability to obtain repayment of the debt…”
“73 The Court of Appeal considered three questions. The first was whether the “reflective loss” principle applied where the wrongdoing took the form of a breach of fiduciary duty rather than the breach of a duty arising under the common law. The court held that it did, following its earlier decision in Shaker v Al-Bedrawi[2003] Ch 350 . That aspect of the decision is not challenged in the present appeal. 74 [not relevant] 75 The third question was whether the “reflective loss” principle applied to a claim arising from a creditor’s inability to recover a debt owed to it by a company in which the creditor was a shareholder. The court held that it did, relying on the treatment of the claim for loss of pension in Johnson’s case, and applying Lord Millett’s dictum, cited at para 62 above. Neuberger LJ stated[2004] 2BCLC 554 , para 70: “It is clear from those observations, and indeed from that aspect of the decision, in Johnson’s case that the rule against reflective loss is not limited to claims brought by a shareholder in his capacity as such; it would also apply to him in his capacity as an employee of the company with a right (or even an expectation) of receiving contributions to his pension fund. On that basis, there is no logical reason why it should not apply to a shareholder in his capacity as a creditor of the company expecting repayment of his debt.”