Paul Richard Knell & Ors v Eric Van Loo

The court determined a petition under section 994 Companies Act 2006 and a related Part 7 claim arising from disputes about two development projects (Bridgwater and Buxton) and the role of Miller Turner Investment Management Limited (MTIM). Key legal conclusions were:

• No binding oral joint venture: the judge found that the alleged oral joint venture between the Claimants and Mr van Loo was at best an expectation or heads of terms and was not intended to be a legally binding contract; the express written asset management agreements (AMAs) and consultancy agreements governed the parties' legal relations.
• Construction of the AMAs: the Bridgwater AMA was construed so that a "Disposal" covers disposal of the whole or any part of the Development (the court read in omitted words to correct a drafting mistake); the defined "Development" included the land under the Brewer 2 option but excluded Compass House and Phase 3; clause 16.2 did not preserve the substantive management rights post-termination but clause 16.1 obliged the owner to use reasonable endeavours to effect a Disposal and could give rise to an actionable claim.
• Part 7 claim dismissed: because there was no legally binding oral joint venture the Part 7 claim for breach of that alleged agreement failed.
• Unfair prejudice under s.994: the petition was upheld in part. The court found unfairly prejudicial conduct in the removal of the Knells as directors of MTIM and in the MTIM board's failure to investigate and, if appropriate, pursue MTIM's rights under clause 16.1 of the Bridgwater AMA. Other complaints (including a personal funding obligation of Mr van Loo and discharge of management fees by assignment and set-off) were rejected as unfair prejudice.
• Remedy: the court proposed a buy-out order requiring BDI to purchase the Knells' shares in MTIM; personal monetary claims against individual respondents were refused.

Background and parties: Paul and Peter Knell (with corporate claimants Marchgale Ltd and Langnell Ltd) brought a petition under s.994 Companies Act 2006 and a Part 7 claim against Eric van Loo arising from their roles in MTIM and two development projects (Bridgwater and Buxton). MTIM had acted as asset manager to special purpose companies. Disputes concerned alleged joint venture terms, funding, fee entitlements under written AMAs, treatment of MTIM's indebtedness to BDI and removal of the Knells as MTIM directors.

Nature of the claims: (i) Petition under s.994 seeking relief for alleged unfairly prejudicial conduct including orders for purchase of shares; (ii) Part 7 claim seeking damages for breach of an alleged oral joint venture and for breach of fiduciary duty.

Issues framed by the court:

• Whether a legally binding oral joint venture existed and, if so, its terms (including any personal funding obligation and treatment of MTIM's debt to BDI).
• Construction and effect of the Bridgwater and Buxton AMAs (meaning of "Disposal", meaning of "Development", effect of clause 16.2 and entitlement to disposal fees).
• Whether conduct of MTIM's affairs was unfairly prejudicial under s.994 (particular emphasis on removal of the Knells and MTIM's alleged failure to pursue claims under clause 16.1).
• Appropriate remedy if unfair prejudice proved, including whether a buy-out or personal monetary awards were appropriate.

Court's reasoning and findings: The judge analysed documentary and oral evidence and concluded the parties treated earlier discussions as heads of terms which were implemented or superseded by written AMAs and consultancy agreements. The Bridgwater AMA was read to include disposals of parts of the Development (reading in "or any part" to correct an obvious drafting omission). The defined Development covered the land subject to the Brewer 2 option but not the separate Compass House land or a later Phase 3 acquisition. Clause 16.2 did not preserve substantive management or carried-interest entitlements indefinitely after termination, but clause 16.1 created an obligation on the owner to use reasonable endeavours to effect a Disposal; MTIM could therefore have a claim for breach of clause 16.1 as at trial.

The court rejected the existence of a personal obligation on Mr van Loo to procure funding or of a concluded term for ring-fencing the BDI loan; those matters were held to be expectations or understandings rather than enforceable contractual promises. The Part 7 claim failed for lack of a binding oral joint venture. On unfair prejudice, the court found the Knells' removal as MTIM directors and the failure by MTIM's board to consider and pursue MTIM's rights under clause 16.1 amounted to unfairly prejudicial conduct; other alleged grounds were dismissed.

Remedy and valuation: The court held a buy-out order against BDI (to purchase the Knells' MTIM shares) was appropriate and would determine valuation issues (net assets methodology, treatment of MTIM's claim under clause 16.1 for Bridgwater, exclusion of Compass House and Phase 3, and treatment of the BDI loan and Savile Row costs). The Part 7 claim was dismissed and personal monetary relief against individual respondents was refused as not properly pleaded or appropriate.

Part 7 claim dismissed because no legally binding oral joint venture was established. The s.994 petition was well founded in part: the court found unfairly prejudicial conduct in the Knells' removal as MTIM directors and in MTIM's failure to investigate or pursue its rights under clause 16.1 of the Bridgwater AMA. The court ordered a buy-out of the Knells' MTIM shares by BDI; personal monetary remedies against the individual respondents were refused. The reasoning rested on (i) construction of the AMAs (including reading-in to correct a drafting omission so that disposals of parts of the Development fall within "Disposal"), (ii) rejection of asserted oral funding and loan-treatment terms as legally binding, and (iii) application of the unfair prejudice principles in O'Neill v Phillips and related authorities.