McConomy & Anor v ASE Plc & Anor

The claim concerned a joint venture for provision of capital allowances services governed by a shareholders agreement and a service level agreement (SLA). The central legal questions were whether ASE had validly varied the SLA by conduct or obtained waivers, whether ASE had repudiated the SLA by agreeing non-standard client terms and by late payment, and whether the majority shareholder (Mr McConomy) could validly terminate the SLA and invoke compulsory buy-out provisions of the shareholders agreement.

The court held that there was no binding contractual variation of the SLA by ASE: while non-standard terms and discounts were sometimes agreed orally and WLT (the service provider) was often accommodating, the required legal change to the SLA had not been shown. The court found limited breaches of §7 (non-standard client terms) and of the SLA payment provisions, but for most disputed client matters WLT would, on the balance of probabilities, have consented had it been asked, so no substantial loss resulted. One client matter (GGT) and certain unpaid invoices did give rise to real loss. WLT’s October 2014 issue of credit notes and revised invoices operated as a temporary forbearance rather than a binding relinquishment of rights. The attempted termination of the SLA and of the shareholders agreement on 19 December 2014 was not justified; the court therefore dismissed those reliefs. The claim against ASE for unpaid sums succeeded in part and WLT was awarded damages of £42,637.63. The claim against the director (Mike Jones) for breach of duty failed.

This first-instance decision concerns a joint venture between Mr Gareth McConomy (majority shareholder) and ASE Plc for provision of capital allowances work through WLT (the joint venture vehicle). The parties executed a shareholders agreement and a service level agreement on 2 September 2011. The claimants alleged ASE agreed non-standard terms with certain ASE clients without WLT's required advance written consent, failed to pay WLT in accordance with the SLA, and thereby authorised termination of the SLA and triggered compulsory buy-out provisions of the shareholders agreement. WLT also brought a claim against Mr Mike Jones for alleged breach of directors' duties.

Nature of relief sought:

• Declaratory relief that the first claimant could invoke the compulsory buy-out provisions of the shareholders agreement;
• Monetary relief (damages) under the SLA for unpaid or short-paid fees;
• Equitable or compensatory relief against the director for breach of duty.

Issues framed:

• Whether the SLA had been validly varied by conduct or waived;
• Whether ASE repudiated the SLA by entering client arrangements inconsistent with §7 and by late payment;
• Whether WLT had validly terminated the SLA and whether Mr McConomy could terminate the shareholders agreement and trigger buy-out provisions;
• Whether ASE’s conduct breached the shareholders agreement (including good faith obligations) and whether termination was a shareholder reserved matter; and
• Whether Mike Jones was personally liable for breach of directors' duties.

Court’s reasoning and conclusions (concise):

• Construction and variation: The SLA required prior written consent for non-standard terms. The court found no clear, binding written or oral agreement effecting a general variation of those terms. Conduct did not establish a lawful permanent variation; Globe Motors and MWB were applied to the issue of oral variations and anti-variation clauses.
• Waiver/forbearance: The credit notes and re-issued invoices of 20 October 2014 reflected a reluctant forbearance by WLT to secure payment rather than a binding accord extinguishing WLT’s rights. There was no sufficient consideration or practical benefit to convert part-payment into a binding compromise extinguishing the original claim.
• Repudiatory breach and termination: On a multi-factor assessment the breaches (client discounts and late payments) were not, in aggregate and by 19 December 2014, such as to deprive WLT of substantially the whole benefit of the contract; termination of the SLA and the shareholders agreement was therefore not justified.
• Shareholders agreement construction: Applying Arnold v Britton, the court considered Schedule 2 reserved matters and concluded it could not safely read down clauses so as to imply that termination of the SLA would never be a reserved matter; even if termination could engage reserved matters, on the facts WLT had no right to terminate unilaterally on 19 December 2014.
• Monetary relief: The court awarded WLT damages totalling £42,637.63 (comprising the GGT loss and unpaid invoices which the court found WLT had not agreed to write off).
• Directors' duties: Claims against Mike Jones failed because he was not shown to have personally negotiated the reductions and his conduct was objectively within the scope of acting in perceived company interests.

The judgment therefore resolved contract construction, variation and waiver, affirmation, repudiation, termination and associated company-law questions. The court awarded damages to WLT in part, rejected the termination and buy-out claims, and dismissed the personal director claim.

First instance: The claimant's monetary claim succeeded in part and the remainder of the claim, including the claimed entitlement to terminate the SLA and to trigger compulsory buy-out under the shareholders agreement, was dismissed. The court found no binding variation of the SLA by conduct, treated the October 2014 re-issued invoices as a temporary forbearance rather than a permanent relinquishment of rights, and concluded that ASE’s breaches were not, by 19 December 2014, repudiatory so as to justify termination. The court awarded WLT damages of £42,637.63 and dismissed the claim against the director for breach of duty. ASE’s contention that it was entitled to invoke the shareholders agreement default provisions succeeded.