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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> GDS Gardner Design Services Ltd v Basic Partition Systems Ltd [2002] EWCA Civ 1337 (30 May 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/1337.html Cite as: [2002] EWCA Civ 1337 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(His Honour Judge Price QC)
Strand London WC2 Thursday, 30th May 2002 |
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B e f o r e :
LORD JUSTICE MANCE
and
SIR MARTIN NOURSE
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GDS GARDNER DESIGN SERVICES LIMITED | Claimant/Respondent | |
-v- | ||
BASIC PARTITION SYSTEMS LIMITED | Defendant/Appellant |
____________________
Smith Bernal Reporting Limited
190 Fleet Street London EC4A 2AG
Tel: 020 7421 4040 Fax: 020 7831 8838
(Official Shorthand Writers to the Court)
Mr P Infield (instructed by Messrs Paul Davidson Taylor, Horsham, West Sussex) appeared on behalf of the Respondent Claimant.
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Crown Copyright ©
"WHEREAS:
A.It is the joint intention of Mr and Mrs Jones to withdraw from active management of Basic a company which they wholly own.
B.It has been agreed that Mr Barton and Mr Gardner will become shareholders of Basic and will be appointed joint managing directors of Basic.
C.These heads of terms are intended to set out the agreement of the parties to the terms for the ongoing management and ownership of Basic.
D.The parties confirm that their intention is to manage Basic to a sale within five years of this agreement.
IT IS HEREBY AGREED AS FOLLOWS:...
8.Mr Barton shall enter into a service contract in the terms attached hereto and shall serve the Company as joint Managing Director.
In addition to the remuneration within the contract of employment Mr Barton shall be provided by Basic with the following `Benefits' at no cost to himself.
(a)Term assurance to age 65 to provide death in service cover to a total sum of £300,000 during the duration of the contract of employment.
(b)Permanent Health Insurance cover on the same terms as presently enjoyed (copy policy attached) during the duration of the contract of employment.
The Benefits under this clause will be provided from the date of this agreement.
9.Gardner Limited will enter into a contract to provide the services of Mr Gardner to Basic as joint Managing Director on similar terms to the contract of employment of Mr Barton, but on the basis that Mr Gardner will be available for at least 3 days per week (subject to 5 weeks absence per annum through normal holiday) at an annual fee of £55,000. In addition to the aforesaid fee Basic will pay an additional fee to Gardner Limited to allow Gardner Limited to fund a term assurance in the sum of £300,000 to age 60 during the duration of the contract for services. The Benefits under this clause will be provided from the date of this agreement.
10.It is intended that Mr and Mrs Jones will resign their executive position with Basic on or before the 31st March 1999.
11.Mr Gardner shall be appointed a director of the Company at a date to be agreed between 17th March 1999 and 31st March 1999. ...
13.It is intended that the company be managed to a sale at a price in excess of £6,000,000 within a three to five year period and the company budgets and plans will be set by the board to reflect this intention.
14.Whereas the board shall be responsible for the executive management of the company the parties recognise that in the following circumstances the holders of the `A' ords shall be entitled without prejudice to any other rights they may have to:
(a)appoint new board members with or without executive authority, and/or;
(b)negotiate to and sell the company or any of its assets without reference to Mr Barton, Mr Gardner or the C, D or E ord shareholders.
The circumstances envisaged are:
(i)a.Profits before tax per the audited accounts for the year to 31st December 1999 does not exceed £450,000.
b.Profits before tax per the audited accounts for the year to 31st December 2000 exceed £550,000.
c.Profits before tax per the audited accounts for the year to 31st December 2001 does not exceed £650,000.
d.Profits before tax per the audited accounts for the year to 31st December 2002 does not exceed £750,000.
e.Profits before tax per the audited accounts for the year to 31st December 2003 does not exceed £850,000.
f.Profits before tax per the audited accounts for the year to 31st December 2004 or any year thereafter does not exceed £950,000.
OR
(ii)in a year in which a budget is set by the board and endorsed in writing by Mr Jones that 50% of the budgeted profit before tax is not achieved.
After 31st March 2009 the holder of the A ords shall be allowed to terminate the agreement at will. ...
16.If the Company is sold for in excess of £6,000,000 Mr Barton shall be entitled to a bonus of £300,000 and Gardner Limited an additional fee of £300,000 provided services are still being provided pursuant to the service contracts referred to in clauses 8 and 9 respectively.
If this agreement is terminated at any time in circumstances not provided for pursuant to clause 14 and services are still being provided pursuant to the service contracts referred to in clauses 8 and 9 respectively the bonuses in this clause shall be paid as if the company were sold as at the date of termination for £6,000,000 and the C and D shares shall become deferred in accordance with the provision of appendix II.
17.If the Company is sold for between £5,000,000 and £6,000,000 pursuant to their respective contracts Mr Barton and Gardner Limited will each be entitled to a bonus/additional fee equivalent to 30% (gross of any tax) of the excess over £5,000,000 provided services are still being provided pursuant to the agreements referred to in clauses 8 and 9 respectively. ..."
"Commencement:
This agreement starts on the 1st day of April 1999 and remains in force until it is terminated by prior written notice sent by either party to the other to take effect not earlier than three months if such notice is given during the first year of the agreement. The period of notice shall be extended by one month for each additional year of the agreement up to a maximum six months after four years."
"... in a proper and efficient manner to perform the role as specified in Schedule 1 hereto and use his best endeavours to develop, maintain and extend the Company's business ..."
"1.Main task as joint managing director to take responsibility for expanding the business with new and existing clients, in particular building new key accounts.
2.To discuss and create sales policy with the sales and marketing team.
3.To offer constant support to the sales team.
4.To act as PR and back up for the company.
5.To find and explore new products and new markets.
6.To locate and recommend possible new appointments to the company through existing sources and contacts.
7.To at all times maintain an executive profile and leadership within the company.
8.In all of these activities maintain close liaison with I.B."
"There were express terms of the Management Agreement that:
(a)Mr and Mrs Jones would withdraw from the active management of Basic from 1 March 1999;
(b)Mr Gardner would be appointed joint Managing Director of Basic from 1 March 1999;
(c)GDS would enter into the Service Agreement with Basic and Mr Gardner to provide the services of Mr Gardner to Basic as joint Managing Director."
"18.In repudiatory breach of the Management Agreement and/or the Service Agreement, Basic gradually removed authority from Mr Gardner so that he was no longer carrying out the function of Managing Director and/or Basic by its Directors caused or permitted or acquiesced in the gradual removal of authority from Mr Gardner by Mr Jones.
PARTICULARS
(a)Mr Jones cancelled two orders made by Mr Gardner for the purchase of polo shirts, notwithstanding that the Board of Directors had resolved to purchase the same on 6 April 1999;
(b)Mr Jones countermanded Mr Gardner's decision to provide David Tallent, a salesman of Basic, with a new company car;
(c)Mr Jones cancelled the distribution of a newsletter and various product literature for the sales force to promote Basic;
(d)Mr Jones countermanded Mr Gardner's decision to order a new section for the partitioning system;
(e)Mr Jones frequently telephoned staff at the Gatwick branch of Basic to monitor the performance of Howard Hainsworth, the branch Manager;
(f)Mr Jones conspired with a Director, Nigel Williamson, to trap two employees suspected of theft;
(g)Mr Jones purported to retain the authority to grant bonuses and by Basic to the Directors;
(h)Mr Jones refused to allow Mr Gardner to introduce a dual system of measuring sales within each branch;
(i)Mr Jones consistently contacted Directors and employees of Basic in order to keep up-to-date with the business of the company;
(j)in or about August 1999 Mr Jones instructed Lin Patti, Gordon Hopkin and Nigel Williamson, being the other Directors of Basic, to report to him weekly on the affairs of Basic;
(k)on 24 November 1999 the Board of Directors resolved to re-appoint Mr Jones as a Director of Basic;
(l)on or about 3 December 1999 Mr Jones told Mr Gardner that he was taking over full control of Basic, that he wanted Mr Gardner to report to him and, if he did not accept Mr Jones taking full control, he had `better consider your [his] future'.
19.By a letter dated 7 December 1999 Mr Gardner accepted the repudiatory breach on behalf of GDS thereby bringing the Management Agreement and Service Agreement to an end."
"... as things had not worked out in the way that he had expected with the departure of Barton and he would think about it and let Mr Jones know by the end of the year."
"... because there was no way we would reach the targets ... unless the sales increased. While these had improved after Barton's departure, the staff still needed encouragement, guidance and goals. I [i.e. Mr Jones] told him to leave the day-to-day management of [the appellant] to the other members of the board and I would be available to assist when necessary. I told him that I wanted him to undertake the role which had been specified in his job description, that of sales and marketing."
"Dear Peter
I refer to our telephone conversation today confirming that a Board Meeting will be called to re-elect Pat and myself back on the Board of Basic Partitions Systems Limited.
I am very unhappy about the lack of profitability of the Company and to that end I will take full responsibility for the running of the Company.
This will enable you to devote all your time at Basic to expand the sales primarily to new key accounts where in my opinion there is a substantial lack of activity. To this end, I would like you to report in writing to me your activities since commencement on a general basis and from August on a detailed basis and this is to be ongoing on a fortnightly basis, to include daily tasks and achievements.
I look forward to this information shortly, perhaps you could leave it in a sealed envelope at Southall or post it together with any other aspects you have been involved in to my son at 14 Holly Crescent, Windsor, Berks SL4 5SL as I am due to be in the UK from late on Friday 19th until late on Sunday 21st November.
Any additional information to set us back to where we were before would be appreciated.
Looking forward to your comments.
Yours sincerely
GLAN"
"It would appear from your letter of 9th November 1999 that you now intend to return to the UK and run Basic as before; this is a complete change of heart and strategy from your original intentions and would suggest that the company cannot run without you and therefore would seriously damage the possibility of a sale as well as denting the confidence of the senior staff and management team."
"What is much more important are the sentiments being expressed by Mr Jones to Mr Gardner at that time. Having heard Mr Jones and on the totality of the evidence I have no doubt that he was making it plain that he was back in the principal executive position to run the company. I accept what Mr Gardner says, that while Mr Jones never said in terms that his services were to be terminated, it was made plain Mr Gardner was going to have to keep in his good books.
The phrase is picked up by Mr Gardner in the letter he wrote on 7th December 1999 which refers to Mr Jones `being adamant that he was returning to run the company'. That letter sets out the case that GDS seek to make. It sets out three heads which are said to constitute fundamental breaches of the Heads of Agreement: first, insisting that Mrs Jones and himself be reappointed to the board; second, taking over the running of the company, `thereby usurping my position as Managing Director'; and, third, interfering with the running of the company before being reappointed. `By reason of that', the letter goes on, `Mr Gardner, on behalf of GDS, rescinds the Heads of Agreement and the contract subsequently entered into between GDS and' himself, the Service Agreement.
The central issue in the case is whether that was a justified course of action. In my judgment, it was. The restoration of Mr Jones as a director not only with an executive role but also taking over the running of the company was, I find, a clear repudiation of the scheme for the ongoing management of that company at the core of the contract expressed in the Heads of Agreement."
"In evidence Mr Jones told me that it was his intention to return as Joint Managing Director leaving Mr Gardner free to concentrate on sales and marketing. In cross-examination Mr Jones simply could not sustain that assertion and conceded that `full responsibility' - to quote from his letter - `for the running of the company meant just that and that it included everything not excluding sales'."
"... but also taking over the running of the company was ... a clear repudiation of the scheme for the ongoing management of that company at the core of the contract expressed in the Heads of Agreement."