JMW Solicitors LLP & Ors v Injury Lawyers 4U Ltd & Ors

Factual and Procedural Background

The Defendants applied for reverse summary judgment pursuant to CPR 24.3 against all claims made by the Claimants in their Particulars of Claim. The Defendants' application was supported by witness statements from the Second Defendant, while the Claimants opposed the application relying on witness statements from partners and directors within their firms. The Court proceeded on the basis that the facts pleaded by the Claimants were true.

The First Defendant ("D1") was incorporated in October 2002 to operate a business generating personal injury case leads via TV advertising for solicitors' firms. Founding solicitors' firms, including the Claimants and Amelans Solicitors, subscribed shares in D1, entitling them to slots on a rota to receive such leads, with an initial capital target of £1 million raised by selling shares at £10,000 each.

A 2002 shareholders agreement ("2002 SHA") was executed anticipating other firms would become shareholders. The business model included a slot price differential whereby new "Panel Members" (non-shareholders) would pay 50% more per slot than founding "B" shareholders.

In May 2003, a Supplemental Deed was entered into, formalising the creation of the Panel and the slot price differential at £10,000 for founding shareholders and £15,000 for Panel Members. The Claimants assert this differential remains binding.

In 2013, a new shareholders agreement ("2013 SHA") and articles of association ("2013 Articles") were adopted, which were silent on the slot price differential and included entire agreement clauses superseding prior agreements.

Over time, the slot price differential was maintained until 2023, when the board purportedly composed of new directors resolved to remove it, effective April 2024. The Claimants challenge the validity of the share transfers and appointments of these new directors, asserting breaches of contract and fiduciary duties.

The Defendants contend that the 2013 SHA superseded earlier agreements, removing any contractual obligation to maintain the slot price differential, and that the new directors were validly appointed. The Claimants dispute this and commenced proceedings in September 2024.

Legal Issues Presented

1. Whether clause 4.3 of the Supplemental Deed, which entrenched the slot price differential, remains binding notwithstanding the 2013 SHA and its entire agreement clause.
2. Whether the alleged collateral warranty or estoppel by convention regarding the slot price differential is enforceable despite the entire agreement and non-oral modification clauses.
3. The validity of the transfer of "A" shares to the new directors and their subsequent appointment pursuant to the 2013 Articles.
4. Whether the removal of the slot price differential constituted a breach of good faith obligations or fiduciary duties by the directors.
5. The appropriateness of granting summary judgment on the Claimants’ pleaded claims and whether permission to amend the Particulars of Claim should be granted.

Arguments of the Parties

Defendants' Arguments

• The 2013 SHA, by virtue of its entire agreement clause, supersedes and replaces the Supplemental Deed, terminating any contractual obligation to maintain the slot price differential.
• The alleged collateral warranty does not exist due to the entire agreement clauses and lack of intention to create legal relations.
• The estoppel by convention claim fails for lack of pleaded facts supporting a continuing convention after the 2013 SHA.
• The appointment of the new directors was valid under the original 2013 Articles, with Mr Twambley appointing them as holders of the majority "A" shares.
• The Claimants have not applied to amend their Particulars of Claim to address new arguments and thus summary judgment should be granted.

Claimants' Arguments

• Clause 4.3 of the Supplemental Deed remains binding despite the 2013 SHA, as a matter of true contractual construction and business common sense.
• The collateral warranty and estoppel by convention claims survive the entire agreement clauses and provide an independent basis to enforce the slot price differential.
• The estoppel by convention is supported by the continued application of the slot price differential after the 2013 SHA and the conduct of the parties.
• The removal of the slot price differential breaches the directors’ obligations of good faith and fiduciary duties under the 2013 SHA and Companies Act 2006.
• The validity of the transfer of shares and appointment of new directors is challenged on grounds including the definition of "Amelans," the implied terms restricting share transfers, the existence of a "sham" appointment, and the board’s failure to exercise discretion properly.
• If the entire agreement clauses apply, the Claimants submit that rectification of the 2013 SHA might be appropriate to preserve their rights.
• The Claimants seek permission to amend their Particulars of Claim to articulate these new grounds.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court first considered the construction of the 2013 SHA and its relationship with the Supplemental Deed. Applying established principles from leading Supreme Court authorities, the Court found the entire agreement clause in clause 27 of the 2013 SHA to be clear and unambiguous in superseding prior agreements, including the Supplemental Deed and its clause 4.3 slot price differential provision. The Court rejected the Claimants' submission that commercial common sense or ambiguity could save clause 4.3 from being superseded.

The Court addressed the Claimants’ alternative arguments based on collateral warranty and estoppel by convention, finding them unmeritorious. It emphasized the effect of entire agreement and non-oral modification clauses in excluding reliance on pre-contractual representations or assumptions, particularly those preceding the 2013 SHA. The Court found no evidence of a post-2013 SHA convention or representation sufficient to support an estoppel claim.

The Court also rejected the Claimants’ rectification argument, noting the absence of pleaded or evidential support for a common or unilateral mistake. The continued application of the slot price differential after 2013 was consistent with the board’s discretion under the 2013 SHA rather than evidence of mistake.

Regarding the validity of the transfer of shares and appointment of new directors, the Court found that the Defendants no longer rely on the 2016 purported variations to the 2013 SHA and Articles but on the original Article 11.1 appointment by the majority "A" shareholder. However, the Court identified potential difficulties with this argument, including procedural irregularities and the existence of incumbent directors, but acknowledged that these issues might be addressed if the transfers and appointments were valid.

The Court recognized that the Claimants have advanced new, unpleaded arguments challenging the transfers and appointments, including the nature of "Amelans," implied terms, sham transactions, and breach of fiduciary duties. The Court considered these arguments sufficiently arguable to warrant an opportunity for the Claimants to apply to amend their Particulars of Claim.

Given the principles governing summary judgment and amendment, the Court held that summary judgment should be granted on the pleaded claims relating to breach of contract, collateral warranty, and estoppel by convention, but reserved judgment on the claims concerning the validity of share transfers and director appointments pending any application to amend.

Holding and Implications

The Court’s final decision is as follows:

• Summary judgment is granted in favour of the Defendants on the Claimants’ claims based on breach of clause 4.3 of the Supplemental Deed, the alleged Slot Price Differential Collateral Warranty, and estoppel by convention.
• Summary judgment is to be granted on the claims relating to the validity of the transfer of shares to the new directors, their appointment, and the removal of the slot price differential, unless the Claimants apply to amend their Particulars of Claim within 14 days and obtain permission to plead the new grounds raised in response to the Application.

The Court directed that any application to amend be heard promptly alongside other consequential matters arising from this judgment. The parties are to agree an order reflecting these directions and liaise with the Court to fix a date for the consequential hearing.

The decision resolves the principal contractual and estoppel claims against the Claimants at this stage but leaves open the possibility of further proceedings if the Claimants successfully amend their pleadings. No new precedent was set beyond the application of established principles on summary judgment, contractual interpretation, and the effect of entire agreement clauses.