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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Bates v Microstar Ltd & Anor [2002] EWCA Civ 1296 (30 July 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/1296.html Cite as: [2002] EWCA Civ 1296

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(Mr M Mann QC)

		Royal Courts of Justice Strand London WC2 Tuesday, 30th July 2002

1. LORD JUSTICE WALLER:There have been before us three applications for permission to appeal different orders made during a highly contentious piece of litigation. Annexed to one of those applications has been an application to put in some further evidence, so there are in effect four matters before us.
2. The background is as follows. Mr Bates brought proceedings against Microstar Limited and Thomas Combrinck. By those proceedings he asserted that he was employed under an agreement entitling him to remuneration, a share of the profits and a percentage of shares in Microstar Limited. He was asserting that in part Mr Combrinck was personally liable on that contract and in part Microstar were liable on that contract. He had, in fact, an alternative basis of putting that claim when the matter came on for trial, which was to the effect that Mr Combrinck was personally responsible for Microstar performing its part of the contract.
3. Mr Bates was undoubtedly employed in one capacity or another from about August 1997, which was the date when Microstar came into existence. Mr Bates alleges that that employment continued through into February 1999, to the 22nd or thereabouts of that month. The importance of that date is that on 12th February 1999 Microstar sold shares that it held in a company called TeleLinx Holdings Limited for £10 million and it was (and, indeed, is) Mr Bates's case that on the terms on which he was employed by Microstar he was entitled to a percentage share of the profits of that deal.
4. Mr Bates's case was that the terms on which he was employed were originally agreed in August 1997, prior to the formation of Microstar, but that they were varied to produce the share of profits and a percentage of shares at a meeting in March 1998 at the Mountbatten Hotel. The defendants accepted that there was an agreement made in August 1997 before the formation of the company. They accepted that that first agreement was adopted by the company and was binding on the company, but they have been somewhat reticent in identifying fully under what terms Mr Bates was originally employed. They contest that any agreement was reached in March 1998, and it is in relation to that contest that the major part of the trial was to take place.
5. The defendants, accepting that there was some agreement between Mr Bates and Microstar, in turn suggest that Mr Bates was in breach of his contract with Microstar. They allege breaches which they say were a repudiation of that contract. They say that they accepted that repudiation and deny any of the entitlement claimed by Mr Bates. In particular, they say that the contract came to an end prior to February 1999. The defendants' case is that, even if Mr Bates was right in saying that Microstar had in some way repudiated its contract with him by suspending him as they did in October 1998, breaches of contract by Mr Bates thereafter, or the conduct of Mr Bates thereafter, were acceptances of the repudiation by the company, thus bringing the contract to an end, again the important date being prior to February 1999.
6. So far as the relevant applications before us are concerned, the chronology is as follows. The proceedings were commenced on 19th February 1999. Mr Bates applied originally for summary judgment and was to some extent successful before Mr Lawrence Collins QC (as he then was) sitting as a deputy High Court judge, he giving a judgment in writing on 9th December 1999. That decision was appealed and the Court of Appeal to a considerable extent overruled that decision by a judgment given on 4th July 2000.
7. Despite the receipt of that £10 million in February 1999, Microstar allowed itself to be struck off the register of companies in Jersey (Microstar being a Jersey company) on 13th October 2000. This did not become known to Mr Bates or those representing him until a rather later date, but for today's purposes that matters not. After Mr Bates became aware of Microstar being struck off the register, he applied for an order that the defendants disclose the whereabouts of the £10 million. This application was not accompanied by a further application for a freezing order and the submission was that, independently of any such application, the court had jurisdiction to make a disclosure order. On 6th July 2001 Mr Justice Evans-Lombe made an order for disclosure. He refused permission to appeal but he granted a stay of his order pending an application for permission and until the hearing of the appeal if permission were granted.
8. On 24th October 2001 Lord Justice Aldous adjourned the application for permission to appeal that order to be heard inter partes, with the appeal to follow if permission were granted. That of course had the effect of continuing the stay of the disclosure order made by Mr Justice Evans-Lombe. Unfortunately, the hearing of that appeal could not be listed before January 2002, by which time the hearing of the main action had taken place and judgment was actually pending. There was some debate between the two sides as to what should happen in relation to Mr Justice Evans-Lombe's judgment, but ultimately it was accepted as sensible to await the judgment on the merits before bringing the appeal on that order before this Court.
9. Judgment in the main action was then handed down in writing on 18th April 2002. The judgment was given by Mr Martin Mann QC, sitting as a deputy High Court judge. That judgment was comprehensively in Mr Bates's favour. The deputy judge found that terms were agreed orally in March 1998, as had been contended by Mr Bates, and he found that there was no conduct of Mr Bates which amounted to repudiation of the contract between Microstar and Mr Bates. He also found that Mr Bates did not accept the repudiation of Microstar until 22nd February 1999, or at least until after the sale of the shares. He refused permission to appeal on the basis that his decision was essentially one on the facts.
10. On 18th April an application was made by Mr Bates for a freezing order incorporating, as is the norm, an order for disclosure. It would seem that Mr Bates himself had a relatively short space of time to consider the judgment, which had of course been handed down in draft, and an affidavit or statement was put together for the purpose of demonstrating a risk of dissipation. Despite submissions from those representing the defendants, a freezing order was made and an order was made for disclosure within seven days of that order of 18th April.
11. We have a file of the material that was before the deputy High Court judge on that day and, although the documents are substantial so far as the file is concerned, it really is composed of the following: a relatively short statement from Mr Bates appending his previous witness statement when he had applied for the disclosure order before Mr Justice Evans-Lombe; the judgment of Mr Justice Evans-Lombe; the application made on that date; the order granting permission to appeal that order and certain outline submissions; and then what are described as photocopies of certain miscellaneous documents. There was also an affidavit from a solicitor employed by Dibb Lupton & Alsop (now called Messrs DLA) seeking to place before the court material in relation to a possible asset that Mr Combrinck had, that being a share in a night club called Fabric.
12. In that material, as I say, was the statement put in by Mr Bates when the matter was before Mr Justice Evans-Lombe for a disclosure order, in which he had said, at paragraph 11.1:

"... there is strong evidence to suggest that there has been an unlawful dissipation of the assets of Microstar. In other circumstances I would have applied for a freezing order against the Defendants. I have not done so because I am satisfied that if the Defendants ever intended to defeat any judgment which I may obtain by dissipation of assets, the relevant arrangements will already have been put in place."

13. That was the basis on which he applied for a disclosure order alone at that stage.
14. So the submission to Mr Martin Mann was that there was no evidence before him of any dissipation, the deponent swearing, in effect, that any dissipation which might have happened post the receipt of the £10 million had already taken place; and no doubt it is right that, so far as the evidence put in at that stage alone is concerned, evidence of dissipation was a thing of the past.
15. The deputy judge clearly took into account the fact that the background was that this £10 million had been received, that the company had been struck off the register and that no explanation had been given about where that £10 million had gone. He then took into account his own view of Mr Combrinck, who had given evidence at the trial, and in particular he took into account the fact that he was certainly assisted by advisers in relation to the formation of companies in various areas outside the jurisdiction. He therefore he took the view that it was right to grant a freezing order. He granted it really on the basis that his view of Mr Combrinck was such that he thought he was likely to dissipate assets. He used the colourful phrase, when refusing permission to appeal, that "the horse may have bolted from the stable; it may be in a paddock and should be restrained from going into a further paddock". That, if I may say so, demonstrated that he was fully apprised of the £10 million factor. He again refused permission to appeal.
16. However, an application for permission to appeal was made and, obviously in the light of the pending application on the disclosure aspect, Lord Justice Robert Walker adjourned that application to be heard on notice. He granted a stay of paragraph 5 of the freezing order, that being the disclosure aspect. So far as permission to appeal was concerned, the same lord justice adjourned the application to the same court hearing the other applications, but he recognised that there would be no time to actually hear the appeal if permission were granted.
17. But, as the history demonstrates, Mr Bates has had the judgment since April 2002 and, so far as the £10 million is concerned, although he made an application for disclosure and obtained that order from Mr Justice Evans-Lombe, and although he obtained an order for disclosure by paragraph 5 on 18th April, he still has no idea where that £10 million is or what has happened to it and he has no idea what dissipation, or further dissipation, might or might not have taken place.
18. Thus it is that the three applications came on before us, but there was then attached to the application in relation to the freezing order an application by Mr Bates, which he puts in this way:- "If this court were in any way persuaded to grant permission to appeal the freezing order on the basis of the evidence that was before Mr Martin Mann, then I apply to put in further evidence to support the granting of the freezing order."
19. For obvious reasons, it was convenient to deal with permission to appeal in the main action. If permission to appeal were granted, that would have provided a different context in which to consider the other applications; and if permission to appeal were refused, that also provides a context in which those other applications should be dealt with.
20. In relation to the main hearing, Mr Martin, who represents Mr Combrinck and Microstar, put in a detailed skeleton argument and addressed us orally for the morning and a little of the afternoon and thus expanded on the points that he submitted provided him with a reasonable prospect of success if permission were granted.
21. The first point relates to authority. There is no attack essentially on the finding of fact by the judge that the terms recorded in the written memorandum as having been agreed at the Mountbatten Hotel were factually agreed. But the argument is that it was well known to Mr Bates that Microstar was a company which was keen to ensure that it would not have UK residence and would not be found liable to pay tax in the United Kingdom.
22. A number of documents had been produced by Mr Bates himself in August 1997 giving directions as to the way in which business was to be carried out, which included a recommendation as follows:

"In the circumstances discussed, the following position would be preferred (the list is not exhaustive, only indicative of the type of practical matters involved):

1.a non-UK incorporated company is established;

2.the directors of the company comprise a majority of non-UK persons;

3.the directors exercise control of the company only through the board meetings;

4.no individual director has the power to commit the company to significant contracts (above a set financial limit);

5.all contracts are signed outside the UK or subject to ratification by the board of directors before they become binding on the company;

6.all board meetings are held outside the UK; ..."

23. I do not need to recite 7, 8 and 9.
24. Mr Bates also produced a chart which had a note on it as follows:

"Contracts are arranged and agreed offshore, and in all cases subject to ratification and agreement by the Board of Directors in Jersey. No individuals have the power to commit the company without reverting back to the Board of Directors."

25. The articles of association of the company contained various articles dealing with the fact that meetings should take place outside the United Kingdom and decisions should be taken outside the United Kingdom. Article 69 provided that:

"The Directors may by power of attorney mandate or otherwise appoint any person to be the agent of the Company for such purposes and on such conditions as they determine ... the appointee shall exercise any powers conferred upon him by his appointment outside the United Kingdom ... "

26. So the idea clearly was that Microstar, which was a Jersey company formed outside the United Kingdom, would conduct its business in such a way that it would not become liable to United Kingdom tax. It is said, therefore, that Mr Bates would know that that was the way in which the company was conducting its business. Thus it is said that Mr Bates should know that Mr Combrinck, who would be acting as agent for the company in so far as he was agreeing matters for Microstar, would not have the authority to so agree.
27. Some criticism is made of the judge that he did not deal fully with these matters in his judgment. But it is quite clear from the judge's judgment, first, that he was clear that an agreement was reached at the Mountbatten Hotel between Mr Bates and Mr Combrinck. It is clear that agreements had previously been reached between Mr Combrinck on behalf of Microstar, not only with Mr Bates in August 1997, but with the other director of the company in August 1997. It is equally clear that the company acted on the basis that agreements had been reached.
28. Mr Martin did not contest that the company had adopted and ratified the agreement that had been made in August 1997 and, as it would seem to me, it is difficult to contest, once one has analysed what was in fact agreed at the Mountbatten Hotel, that that was the agreement that would be adopted and ratified by the company thereafter. The position, after all, was that Mr Combrinck was the 70 per cent shareholder and a director of Microstar, who would have had the authority to make any contract on behalf of Microstar or ensure that the company gave him that authority. If, as a fact, he makes the agreement which the judge found him to have made on behalf of Microstar, then, as it seems to me, no tax scheme can negative that reality. Those being the findings, in effect, of the judge, in my view there is no prospect of persuading the Court of Appeal, if permission is given, that he should be reversed on that.
29. The further point made by Mr Martin relates to the fact that in September 1998 Mr Bates produced two drafts of written contracts which essentially set out the terms as agreed at the Mountbatten Hotel but in one area went further than anything agreed on that day. The one area where it went further related to the period of the contract. What was agreed at the Mountbatten Hotel was that there should be a 12-month notice period rolling. When a draft of the agreement was produced as between Microstar and SMD & Co, which was Mr Bates's accountancy practice, the agreement was shown as continuing in force until 30th September 2002.
30. Those written agreements have a slightly odd history in that it seems that they only appeared for the first time (so far, in any event, as the legal advisers were concerned) when the Court of Appeal was considering whether the summary judgment granted by Mr Lawrence Collins should be upheld. Neither side apparently relied upon them as themselves being contracts; although I should add, in parenthesis, the reason why they might have been is that Mr Combrinck in any event had signed both versions on behalf of himself and Microstar. But the Court of Appeal, not surprisingly, in the light of those written documents having been drawn up, obviously felt that that might throw light on whether there was a fully binding agreement concluded at the Mountbatten Hotel. It obviously gave rise to the thought that such agreement as had been reached at the Mountbatten Hotel was an agreement subject to contract and subject to written terms being further agreed.
31. That is a matter which the judge addressed at the trial. The judge dealt with the fact that these documents were produced by saying that in his view it was hardly surprising that Mr Bates might produce documents at this time because obviously he was feeling the pressure and wanted to have the protection of some written document. The judge referred to the fact that it was hardly surprising that he might want a more, what he described as, "current term". But the essential fact found by the judge was that there was a fully binding agreement reached in March 1998 and that in truth the production of those written contracts simply supplied the defendants with an opportunity of suggesting that no binding contract had been concluded. As it seems to me again, the judge having explored the matter and having concluded that the agreement reached in March 1988 was not still subject to contract, there is no prospect of persuading the Courts of Appeal to reverse that finding.
32. The judge also found in any event that there had been ratification. In May 1998 a payment was made by Microstar to Mr Bates. Some criticism is made of the judge in relation to this aspect. What is said is that he wrongly records a concession being made by the defendants. What the judge suggested was that the defendants were conceding that an agreement of a similar nature had been made with Mr Vijay Khakhria, who was the other director, and that the concession in that regard that there had been ratification of that contract meant that when there was payment to Mr Bates there was also ratification of his contract in the terms as agreed in March rather than a contract which would simply have been a contract for an increase in remuneration.
33. It is difficult to know precisely why the judge recorded some concession. Mr Martin says there was not one. But it seems to me that on the evidence the position was that the judge had found that there was this agreement made; that Mr Combrinck was a party to it; that he was a 70 per cent shareholder of Microstar and a director of Microstar; that there was ratification by the payment of £10,000 and that, if there was ratification, it would be ratification of the agreement that Mr Combrinck had breached. Again, as I see it, there is no basis for persuading the Court of Appeal to reverse that finding.
34. That leaves the question of breaches. Mr Martin divided them between those before 19th October 1998 and those that occurred after October 1998. The relevance of that date is that it was on 19th October 1998 that Microstar sought to suspend Mr Bates.
35. So far as pre-19th October 1998 is concerned, Mr Martin sought to go to various passages in the judgment. He went to pages 19, 22 and 82 and pointed out that in those passages what the judge appears to be saying is that certain of the criticisms that might be made of Mr Bates should not be thought of as purely his responsibility. So, for example, the judge said at page 22:

"On the other hand, Mr Bates's evidence, if I accept it, tends to support the converse and concomitantly that Mr Khakhria should have involved himself in the general administration of the corporate holding structure to an extent which would render him at least as responsible for any failures in that regard as Mr Bates."

36. Mr Martin suggests thus that the judge was looking at Mr Bates's conduct through distorted lenses. He suggests that it was not a question of whether he and some other person may or may not have been in part responsible for the conduct relied on, but the question was whether Mr Bates himself had conducted himself in a way which was in breach of contract and, in particular, whether Mr Bates had conducted himself in a way which was a repudiatory breach. In that context he points out that the judge actually did make some criticism of Mr Bates on one aspect at page 48 of the judgment. When Mr Martin was asked to indicate precisely in the judgment what conduct Mr Bates had been shown to have carried out which might be said to be repudiatory of the contract, he said that he could not do that in the judgment but that that was because of the way in which the judge had approached the problem. I have to say, for my part, that I simply cannot find any basis on which the Court of Appeal would overrule the findings of the judge in relation to Mr Bates's conduct prior to 19th October 1998.
37. Dealing with the matters post 19th October 1998, the position is this. Mr Bates was suspended on 19th October 1998. On the next day, 20th October, there was a meeting of the directors of TeleLinx Holdings Limited ("TL"). Mr Bates was a director of that company; Mr Combrinck was a director and chairman of that company; Microstar was a 50 per cent shareholder in that company and Fortman Holdings Limited was the other 50 per cent shareholder in that company. There was also a Mr Williams who was a director of TL and it seems (certainly this is not challenged by Mr Martin) that it was thought by Mr Williams and Mr Bates, as directors of TL, that it was in the interests of TL that Mr Combrinck should no longer be chairman of TL. I stress that it was not thought that he should be removed as a director, but simply that he should be removed as chairman. That resulted in Mr Bates casting a vote in favour of removing Mr Combrinck as chairman of TL.
38. What Mr Martin suggests is that Mr Bates's position on that day was one in which he owed a duty to TL and owed a duty to Microstar and that, although he may well have been performing his duty to TL, he could not at the same time be performing a duty to Microstar by removing Mr Combrinck from the chairmanship of TL. That, as I see it, overlooks the fact that Microstar was a 50 per cent shareholder of TL. Mr Bates, in acting in the best interests of TL, must also be seeking to act in the best interests of the shareholders of TL. As it seems to me, this is not one of those situations where one can say that by removing Mr Combrinck as chairman he is in breach of any duty of good faith or fidelity to Microstar.
39. The second point relied on is that at the same time Mr Combrinck's personal assistant was removed from TL's premises, the reason for that being that it was reasonably believed that the personal assistant was snooping and was not behaving in the interests of TL. Once again, as I see it, there is no basis for suggesting that that conduct is in breach of some duty of good faith to Microstar.
40. Two other points are taken. One relates to the terminology in a letter written by Mr Bates to a solicitor acting for Fortman Holdings Limited. But one must remember the context in which that letter was written. At this stage there is already a dispute between Mr Bates and Microstar and any criticism of the language of that letter has to be read in the context of somebody seeking to achieve the best deal for himself, which he is certainly entitled to do without being said to be in breach of his duty of good faith to Microstar.
41. The final point taken relates to the establishing of the business of Macro Consultants Limited. I have to say that for my part I have not fully understood the point made there. Mr Bates did at certain stages operate through his accountancy partnership and, once again, I can see no basis for suggesting that simply operating through Macro Consultants Limited can be said to be a breach of his duty to Microstar.
42. Even if any of those matters could be said to be breaches in some way, in my view they were certainly not repudiatory breaches. They were not breaches which could thus be said to be such as would bring to an end the contract by themselves having to be interpreted as acceptances of the breaches committed by Microstar. As I see it, there is no basis on which the Court of Appeal would be persuaded to reverse the judge in relation to those aspects.
43. Finally, Mr Martin makes certain criticisms of the reasoning of the judge. The first point he takes relates to what was undoubtedly a very unfortunate aspect so far as the handing down of judgment is concerned. The judge handed down a draft judgment in which he recorded the obtaining of summary judgment in the sum of £193,119.49 and interest of £9,191.20. That was totally inaccurate and made it look as though he thought that to a considerable extent Mr Bates had succeeded at summary judgment stage. The true figures were recorded ultimately in the judgment handed down as £38,285.65 and interest of £3,481.45. Mr Martin says that if this is the basis on which the judge started, i.e. that there was considerable success at the summary judgment stage, then that indicates that the judge's approach was entirely wrong and that the very least that now should happen is that there should be a retrial.
44. In my view that is taking this error too far. It seems to me highly unlikely that the judge had ever started his reasoning process, in relation to who he believed and what he thought had been established, from the basis of this mistaken view as to the summary judgment. The judge himself said that this was put into the judgment at a later stage when he was trying to record the background. On any view, once the matter had been pointed out to him, he had an opportunity to consider the matter again. Although it is clearly most unfortunate that it should have happened, it seems to me that there is no reasonable prospect of persuading the Court that they should order a retrial in this case.
45. Then there are various other criticisms of the judge. What is said is that there were certain facts ignored which were contrary to Mr Bates's case and certain facts which it is said were resolved on a false basis. Indeed, Mr Martin took us to one aspect which he had not put in his skeleton argument. There is no doubt that there are aspects of this judgment that could have been expressed better. But, as it would seem to me, at the end of the day what one has to do is to stand back from a case of this sort and look at it in the light of the findings of the judge that an agreement was made in March by which this company and this man, Mr Combrinck, were bound, that itself only being an amendment to a contract that undoubtedly existed. One then has to ask oneself, in that context and in the context of the types of matters which were alleged to be breaches or repudiatory breaches, is there any reasonable prospect of the Court of Appeal reversing that decision of the judge or ordering this case to be retried? My answer would be a clear no; and it is for that reason that permission to appeal on the main action is refused.
46. We then had to consider the freezing order made by the judge. Mr Martin applied for permission to appeal that order. Mr Martin's point was that there was no evidence of risk of dissipation. In my view there was sufficient material before the judge. In the history that I have already recited, it seems to me to be clear that he had in mind the £10 million and he had in mind that the company had allowed itself to be struck off the register. He also had in mind that no one on the defendants' side had given any information as to where that £10 million had gone. He then had in mind the evidence that had been given by Mr Combrinck and the poor impression that Mr Combrinck had made on him. As it seems to me, on the material that the judge had, a freezing order was justified and also an order for disclosure; and in my view permission to appeal that aspect should be refused.
47. That also thus disposes of any application to put in fresh evidence. There is no need to deal with that aspect.
48. So far as the final disclosure order is concerned, there now being a freezing order and there now being an order for disclosure as part of that freezing order, as Mr Martin rightly accepted, the question whether Mr Justice Evans-Lombe was right or wrong is itself academic. He said, however, that an order for costs was made which, if Mr Justice Evans-Lombe is wrong, should not have been made. The view, as we expressed to him and which I now repeat, is that it would not be satisfactory for this court to deal with what is now a totally academic point. If an enormous quantity of costs depended on it, I suppose the court might feel obliged to do so. But the costs cannot be that extensive, and on that basis the court takes the view that it is wrong to go into that matter. That application is therefore dealt with in that way.
49. LADY JUSTICE HALE: I agree.
50. LORD JUSTICE CARNWATH. I agree.
Order: applications for permission to appeal dismissed; applicant defendants to pay costs of all applications before the court; stay on order of Evans-Lombe J.