Majority Shareholders – Use Your Power to Take Control of Your Company

In the beginning…

Tom had an idea. He had been working in the construction industry for a couple of years and had spotted a niche for high quality products that was not being met.

So, he set up a company and called it Clear Co. He asked someone he had worked with previously to come on board and they agreed.

Marketing was going to be crucial to Clear Co’s success, so Tom approached Anthony to get a quote for a website.

Anthony came up with a quote for the website for £15,000. He also explained to Tom that marketing didn’t just mean having a website, it was an on-going process that required a lot of activity.

As cash was tight at the beginning of the enterprise, Anthony agreed that he would carry out all the marketing for Clear Co. in return for 30% of the company’s shares.

Business Partners

A previous business partner of Tom’s dropped out, leaving him and Anthony to run the company. Tom held 70% of the shares and was the only named Director of the company, while Anthony was a minority shareholder only, with 30% of the shares.

Crucially, Anthony was introduced into all aspects of the business, including being taken on trips to meet Clear Co’s main suppliers.

Tom, with the help of his suppliers, developed and refined Clear Co’s product. Based on Tom’s work, Clear Co. developed a unique, high quality product to sell to the market. Anthony continued the marketing.

Trouble Brewing

Anthony started complaining about the original deal and started asking for fees to be paid for his marketing work in addition to the shares he had already received.

Anthony also made sure that the Clear Co domain name was registered in his name and, of course, because he was responsible for the marketing, he had access to Clear Co’s website and social media accounts and even the cloud based system the company used for its administration.

After a few years Anthony’s fees became the company’s biggest expense, yet he was still not satisfied.

Matters came to a head when Anthony suggested that a second website could be built to enhance the marketing effort. Tom said he thought it was a good idea, but he wanted to make sure that the website belonged to Clear Co.

Anthony became evasive and the matter was dropped, or so Tom thought.

In fact, Anthony went ahead and built the second website and once completed, presented it to Tom. Anthony suggested that Tom should pay a percentage of any leads obtained through the second website, which Anthony claimed to own himself, or Tom could give him (Anthony) 50% of the shares of Clear Co.

Breaking Up

Tom, tired of Anthony’s demands and extremely annoyed by being presented with the second website and Anthony’s ultimatum, didn’t accept either of the proposals.

He told Anthony that he didn’t want to work with him anymore and asked for control of the domain name, the website of Clear Co and all other company information to be returned to him.

Tom, angry but also sad at the turn of events, remained conciliatory in the letters that passed between the two and genuinely hoped for an amicable settlement.

Anthony apparently had no such ideas. He pretended to give back access to the company’s administration system and website, whilst ensuring he retained access.

He set up his own company; Opaque Limited, contacted Clear Co’s suppliers and set up in competition with Clear Co. Anthony used the second website, all the product and marketing knowledge he had gained whilst working with Tom and the information kept and updated on Clear Co’s systems.

Opening Exchanges

Still hoping for an amicable resolution, Tom instructed an intellectual property solicitor. An interim injunction was considered, but Tom didn’t want to “escalate” the legal proceedings and decided against it.  Correspondence was written to Anthony demanding the return of Clear Co’s confidential information and intellectual property.

Anthony had no concerns about increasing the temperature of the dispute and adopted a strategy of bullying Tom into giving him what he wanted. He hired a large West End firm who we later found out,  agreed to work for him without charge.

Responses to Tom’s letters were not only deliberately obstructive, they began threatening court action against Tom on the grounds that he was prejudicing Anthony’s position as a shareholder of Clear Co.

The IP solicitor, not being a litigation specialist, became concerned with the threats of court action as the other side wanted him to. Tom was well and truly on the back foot with no sign of getting any recompense for the obvious wrong he had suffered. That is when he came to us.

Setting The Agenda

Shortly after we were instructed, it came to light that Anthony has been hacking the Clear Co website and putting links from that site to his own Opaque website.

We advised Tom of his options and gave him estimates for the costs and time scales of the choices he might need to make.  We also advised him about the chances of recovering his costs from Anthony if he was successful. This gave Tom a greater feeling of control over the situation. 

The correspondence took a different turn with us setting out Anthony’s dishonesty and refusing to back down when challenged.

We also highlighted the conduct of the West End firm, who had been making numerous threats of court action when no possible cause of action existed.

With Anthony’s efforts to divert attention away from his own unlawful conduct failed, we started to build a case for Tom.

Tom’s Case Against Anthony

Even though Anthony only had a contract with Clear Co, (he was never an employee, nevermind a director) such was the extent to which he had been involved in the business and his role within it, he clearly owed fiduciary duties to the company. He also had obligations through the express and implied terms of his contract, which he had breached.

We drafted a claim that required:

Anthony to pay damages to Clear Co for the loss of business caused by Anthony through Opaque Limited, competing with it and/or an account of the money he had made through Opaque.

An injunction to prevent Anthony continuing to use the Opaque site and competing with Clear Co.

An order for delivery of all the confidential information held by Anthony/Opaque and an injunction to prevent him from using the information further.

We went through hundreds, if not thousands of documents with Tom to build the strongest case we could for him and advised him of what he might expect to get and his prospects of success, which were good.

Court Action

At this point Tom was prepared to take the case the whole way but wanted to avoid the outlay if he could. So, we set out our case in detail to the other side, sending a copy of the Particulars of Claim we had drafted, along with a number of settlement offers.

Anthony refused the offers and proceedings were issued.

The sides then went through the process of exchanging Statements of Case, The Claim Form, and Particulars of Claim for Tom and the Defence from Anthony. After consideration of the documents, prospects for Tom continued to look positive and we advised him of this.

The case then went into the court’s administrative stage known as Allocation. Each side is required to put together a suggested timetable to take the case to trial and a budget for doing so. The parties exchange these documents, and it was then that we learned Anthony had been funded and probably still was being funded by West End firm.

This was a blow. Our efforts to settle the case had probably not succeeded because Anthony had thought he didn’t need to compromise with all the help he was getting.

The case was becoming complex. Anthony wanted to keep the case to a minimum of documents so that he could claim he had little to do with the company and did not owe any fiduciary duties. We wanted the history of his dealings with Clear Co set out in full, so that it would be obvious that he owed fiduciary and contractual duties to the company and that he had breached them.

We also had to prove the interference with the Clear Co website we knew had been going on.

The Tide Turns

At a Case Management Conference at the court, we argued and eventually got the other side to agree that disclosure of documents had to be done fully. This also increased the costs, which the West End firm, who we think were still providing support for Anthony, probably didn’t like.

We also argued for and got permission to provide further expert evidence on Anthony’s hacking of the Clear Co’s website.

We went back to our expert and using analytical software were able to show beyond doubt that in the early exchanges of the dispute Anthony had been manipulating the Clear Co website. This had been done at the same time as he had been competing with the company and getting the West End firm to write letters falsely saying that we were the one undermining the company. 

Mediation and settlement.

The courts are very keen on the parties in court actions using mediation to settle cases. To not go to mediation means you run the risk of facing severe cost sanctions, even if you win your case.

We were satisfied with the preparation of our case and suggested mediation to Anthony and his solicitors.

Prior to mediation we set out our case in full and disclosed our expert evidence that showed that Anthony had been hacking the Clear Co website and acting dishonestly in the conduct of the litigation.

At the mediation we were able to speak to Anthony directly and set out what we knew. We were also able to speak to the West End firm and reinforce the point already made, that they potentially bore a liability for the costs of this action for having supported Anthony.

We got a settlement that exceeded what we had agreed with Tom would have been acceptable beforehand.

• Anthony to pay damages to Clear Co for loss of business.
• Anthony to return his 30% shareholding in Clear Co to Tom for £1,
• Restrictions on Opaque being able to trade in competition with Clear Co.
• All domain names and control of the Clear Co website to go back to Clear Co.

Would Tom have liked to put Anthony and Opaque out of business? Of course, but he would only really have been able to achieve that if he had gone for an interim injunction at the start of the dispute. Was he happy with the settlement though? He was delighted.

The Final Hurdle

At the end of the mediation, which lasted 11 hours, we had the outline of an agreement.

In the six weeks after the mediation, the experienced and capable litigators of the West End firm, tried everything to water down the agreement and limit its impact on Anthony and value to Tom.

Our experience and expertise enabled us to foil every attempt. At the point when we thought we just couldn’t do business with these people and we would have to go back to court, they agreed to what had been first set out in the mediation.

It was the last working day before Christmas, it had taken three years to settle and we had won. Tom was on holiday, so we told him the good news. We went to the pub to celebrate. 

Why did we win?  

• We relied on analysis of the issues rather than intimidation.  
• We did not give in to the intimidation used against us.  
• We supported Tom through what might have been one of the toughest things he has ever had to go through.  
• Our knowledge and experience helped us get what Tom wanted.