Towler v Wills

Statements of case must clearly and concisely identify the facts relied upon. Unreasonably vague or incoherent pleadings may be struck out where doing so is plainly justified, fair, just and proportionate. Serious allegations akin to dishonesty require sufficient particulars, including knowledge where it is essential to the allegation.

A shareholder cannot recover losses reflective of losses recoverable by the company. This restriction covers lost share value, dividends and directors’ earnings and benefits where they reflect company losses. The exception for wrongdoing which disables the company from pursuing its remedy requires the disabling conduct to be pleaded. Persistent failure to provide a clear and particularised case despite repeated opportunities may justify indemnity costs.

David Towler and Dr Julian Wills were shareholders in Cambridge Online Learning Limited. Dr Wills was also a director. Mr Towler claimed £2.593m for alleged breaches of their shareholders’ agreement, which restricted conduct causing specified corporate actions and required disclosure of material matters. His case centred on alleged undisclosed conflicts of interest relating to an asset purchase and a loan repayment.

He sought the value of his interest in the company, lost dividends, directors’ earnings and benefits, and costs of establishing another business. Dr Wills applied to strike out the amended particulars, supplemented by further information, because they were unclear and most losses were reflective of company losses. Mr Towler represented himself and proposed a re-amendment after the initial hearing. The court considered the adequacy of both pleadings, the recoverability of the losses and the appropriate costs orders.

The claim was struck out and permission to re-amend was refused. Teare J held:

1. A statement of case must concisely and clearly state the facts relied upon so that the defendant can answer it and prepare his defence. Unreasonably vague or incoherent pleadings could be struck out under CPR 3.4. Applying Williams & Humbert Ltd. v WH Trade Marks (Jersey) Ltd. [1986] AC 368, striking out was appropriate only in a plain and obvious case. The amended particulars failed clearly to identify the transactions and conduct complained of, while the further information failed to cure those defects and appeared to introduce unpleaded claims. Given the repeated opportunities to clarify the case, striking it out was fair, just and proportionate.

2. The claims for lost share value, dividends and directors’ earnings and benefits were barred by the reflective-loss principle in Johnson v Gore Wood [2002] 2 AC 1. On the claimant’s apparent allegations, the company would have its own claim for breach of the defendant’s fiduciary duty as director. His directorship and fiduciary duties were undisputed, and proving the alleged undisclosed conflicts would also establish the company’s claim. The concern in Perry v Day (2005) BCC 375 about establishing the company’s claim before trial therefore did not prevent determination of this issue.

3. Under Giles v Rhind [2003] Ch. 618, the restriction did not apply where the wrongdoing made it impossible for the company to pursue its remedy. The necessary allegation that the defendant’s conduct had disabled the company, rather than its liquidator having chosen not to sue, was absent from the amended particulars. Correspondence concerning funding could not cure that omission, providing a further ground for striking out the first three heads of loss.

4. The business-establishment expenditure appeared, on the claimant’s own explanation, to have been incurred by another company which he funded. That company was not a party and had no apparent cause of action, providing an additional ground for striking out the fourth head.

5. Applying Three Rivers [2003] 2 AC 1 and the Commercial Court Guide, serious allegations akin to dishonesty required sufficient particulars. The proposed allegations that the defendant allowed an unjustified payment and the acquisition of a valueless asset omitted allegations and particulars of his knowledge of the transactions and their alleged defects. Other proposed allegations were insufficiently particularised or incoherent. Although the draft expressly addressed reflective loss, its pleading defects justified refusal of permission to re-amend.

6. The persistent failure to provide a clear and particularised case despite repeated opportunities made the circumstances sufficiently out of the ordinary to justify indemnity costs. The defendant was awarded the costs of the action and both applications, subject to detailed assessment on that basis. A payment of £30,000 on account was ordered within 21 days.

The claim was issued on 11 September 2009. Amended particulars were followed by further information served on 19 January 2010. During the strike-out proceedings, the court permitted the claimant to make further written submissions and submit a draft re-amendment. The court subsequently struck out the claim and refused permission to re-amend.