Paul Richard Knell & Ors v Eric Van Loo

A court may correct an obvious drafting mistake in a commercial agreement where the mistake and the required correction are sufficiently certain. The surrounding factual matrix and commercial consequences may inform that correction.

Following termination of an asset management agreement, a clause continuing its provisions until outstanding fees were paid did not preserve continuing substantive fee entitlements. It preserved only provisions applicable to settling existing rights. However, an obligation to use reasonable endeavours to complete a disposal remained relevant to damages.

Under the unfair prejudice jurisdiction, exclusion from management may be unfair where members had a legitimate understanding that they would participate in management, even though no binding contractual right existed. A failure to investigate and pursue the company’s valuable claim may also constitute unfair prejudice.

The judgment concerned two related proceedings. Paul and Peter Knell, together with Marchgale Ltd and Langnell Ltd, brought a Part 7 claim against Eric van Loo for alleged breaches of an oral joint venture agreement and fiduciary duties. Paul and Peter Knell also presented a petition under section 994 of the Companies Act 2006 alleging unfair prejudice in the affairs of Miller Turner Investment Management Ltd.

The disputes arose from proposed Bridgwater and Buxton property developments, managed through written asset management agreements. The claimants alleged that Mr van Loo had undertaken to procure funding, that the parties had agreed continuing management and fee arrangements, and that the later exclusion of the Knells and treatment of company debts were unfairly prejudicial.

The central issues were whether the alleged oral joint venture was legally binding, how the asset management agreements operated, and whether the matters relied on established unfair prejudice and justified a share buy-out.

1. Part 7 claim. The alleged oral joint venture was an initial understanding or heads of terms, not an intended legally binding contract. The parties contemplated subsequent written agreements, including the Bridgwater and Buxton asset management agreements and the consultancy agreements. There was no binding personal obligation on Mr van Loo to procure project funding, and no binding term governing the treatment of MTIM’s debt to BDI. The Part 7 claim was dismissed.
2. Construction of the asset management agreements. The definition of “Disposal” in the Bridgwater agreement contained an obvious omission. It was to be read as including a sale, transfer or exchange of the freehold interest in the whole or any part of the Development. The Development included land covered by the Brewer 2 Option, but not the Compass House land or later Phase 3 land. Clause 16.2 did not preserve continuing substantive fee entitlements after termination. Clause 16.1 nevertheless required reasonable endeavours to complete a disposal and supported a damages claim. Under the Buxton agreement, a reasonable sale fee could be determined as 10% of sale proceeds.
3. Unfair prejudice. The Knells had a clear expectation and understanding that they would participate in the management of MTIM. Their removal as directors and exclusion from management were therefore unfairly prejudicial, although BDI had the strict legal power to remove them. The appointment of additional directors was also unfairly prejudicial. By contrast, the failure to fund the projects, the assignments and set-offs of BDI’s loan, the failure to pursue an August 2015 refinancing fee, and termination of the Buxton agreement did not establish unfair prejudice.
4. The directors’ failure properly to consider, investigate and pursue MTIM’s prima facie claim against BGL under clause 16.1 of the Bridgwater agreement was itself unfairly prejudicial. The petition was therefore well founded. BDI was ordered to purchase the Knells’ shares in MTIM, with the valuation and disposal-cost issues requiring further submissions. Personal monetary relief and declarations of fiduciary breach were refused.

First instance decision. No prior appellate decision is stated in the judgment.