Factual and Procedural Background
This case concerns a dispute about the control and leadership of Company A, which operates in the online pharmacy sector. Prior to 30 August 2024, the Plaintiff was the chief executive of Company A, and the second Defendant was its chief commercial officer. On 30 August 2024, the board of Company A sought to summarily dismiss the Plaintiff from his service agreement and treat him as a Bad Leaver under the company's articles of association. The board also sought to remove the Plaintiff as a director. The Plaintiff challenges the validity of these actions, seeking a declarator that the termination of his service agreement was null and void. The Defendants challenge the relevancy of the Plaintiff's pleadings on several grounds. The court heard the case at debate.
Legal Issues Presented
- Whether the Plaintiff's termination by Company A was valid or null and void.
- Whether the Plaintiff's rights under certain disputed agreements were waived or if he is personally barred from relying on them.
- The relevancy of the Plaintiff's pleadings regarding the disputed agreements.
- The legal effect of warranties given by the Plaintiff in subscription agreements on his rights under the disputed agreements.
Arguments of the Parties
Plaintiff's Arguments
- The Plaintiff contends that his relationship with Company A is governed by several agreements, including a service agreement (dated 6 March 2020), a non-executive director's agreement, and a consultancy agreement (collectively the "disputed agreements"). He argues that the termination of his service agreement was invalid and that even if valid, he remains a non-executive director and consultant under the other agreements, thus not qualifying as a Bad Leaver.
- The Plaintiff denies the Defendants' assertion that the disputed agreements were waived or that he is personally barred from relying on them.
- He submits that to establish implied waiver, the party asserting it must prove that they acted in reliance upon a belief induced by the conduct of the party said to have waived its rights, citing binding authority.
- The Plaintiff disputes the Defendants' identification of certain disclosed documents in subscription agreements and contends that the warranties given do not unequivocally abandon his rights under the disputed agreements.
- The Plaintiff argues that the Defendants cannot prove that Company A conducted its affairs on the belief that the Plaintiff had waived his rights under the disputed agreements.
- The Plaintiff rejects the Defendants' personal bar argument, contending that it requires proof that Company A was induced to believe the disputed agreements did not exist, a matter properly addressed as waiver.
Defendants' Arguments
- The Defendants accept that Company A's articles of association and shareholders' agreement regulate the Plaintiff's relationship but dispute the authenticity of the disputed agreements and argue the Plaintiff has waived his rights or is personally barred from relying on them.
- The Defendants rely on a series of subscription agreements (dated December 2022, March 2023, and March 2024) entered into by Company A and the Plaintiff as "Founder," containing warranties that deny the existence of agreements other than those disclosed, which do not include the disputed agreements.
- They argue that by granting these warranties, the Plaintiff impliedly waived any rights under the disputed agreements, and Company A relied on this waiver in conducting its affairs.
- The Defendants invoke the legal principles from Armia Ltd v Daejan Developments Ltd and related authorities to support the requirements for implied waiver, emphasizing that waiver is a question of fact determined objectively.
- They also argue that the Plaintiff is personally barred from relying on the disputed agreements because his conduct induced a justifiable belief in Company A that he would not enforce those rights, causing prejudice to Company A.
- The Defendants reject any attribution of the Plaintiff's knowledge to Company A that would undermine their waiver argument, relying on the principle that attribution should not allow a director to benefit from their own wrong.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Armia Ltd v Daejan Developments Ltd 1979 SC (HL) 56 |
Requirements for implied waiver: abandonment of a right; objective determination; reliance by the other party. |
The court accepted this as the foundational authority for implied waiver and applied its two-limb test to the facts. |
| Mactaggart & Mickel Homes Ltd v Hunter [2010] CSOH 130 |
Summary of implied waiver law emphasizing objective conduct and reliance. |
Used to clarify the nature of implied waiver and reliance in this case. |
| Lousada & Co Ltd v JE Lesser (Properties) Ltd 1990 SC 178 |
Requirement that the party asserting waiver acted in reliance on a belief induced by the other's conduct. |
The court interpreted this as consistent with an objective test and did not accept it as imposing a subjective belief requirement. |
| James Howden & Co Ltd v Taylor Woodrow Property Co Ltd 1998 SC 853 |
Clarification on the nature of reliance and belief in waiver cases. |
The court held that the passage relied upon was fact-specific and did not alter the general law on implied waiver. |
| Singularis Holdings Ltd (in liquidation) v Daiwa Capital Markets Europe Ltd [2019] UKSC 50 |
Principles of attribution of knowledge to a company. |
The court noted this authority but found no need to apply it as the Plaintiff did not argue attribution. |
| Bilta (UK) Ltd (in liquidation) v Nazir [2015] UKSC 23 |
Limits on attributing director knowledge to the company to prevent benefiting from own wrong. |
Referenced in the context of attribution arguments. |
| Gatty v Maclaine 1921 SC (HL) 1 |
Elements of personal bar: knowledge of rights, inconsistent conduct, assertion of rights causing prejudice. |
Used to support the Defendants' personal bar argument as an alternative to waiver. |
| William Grant & Sons Ltd v Glen Catrine Bonded Warehouse Ltd 2001 SC 901 |
Application of personal bar principles. |
Supported the personal bar argument regarding prejudice and representation. |
| Ben Cleuch Estates Ltd v Scottish Enterprise 2008 SC 252 |
Objective test for representations and reliance. |
Applied to assess whether the Plaintiff's conduct justified the Defendants' belief. |
Court's Reasoning and Analysis
The court began with the established legal principles on implied waiver, primarily derived from Armia Ltd, requiring (1) that the party said to have waived its rights knowingly acted so as to abandon those rights, and (2) that the other party conducted its affairs in reliance on that waiver. The Defendants argued these were satisfied by the warranties given by the Plaintiff in the subscription agreements, which denied the existence of the disputed agreements.
The court found considerable force in the Defendants' position, noting that the Plaintiff had repeatedly given warranties inconsistent with reliance on the disputed agreements, including in critical financial circumstances. The Plaintiff's admissions confirmed that the disputed agreements were not disclosed to investors, reinforcing the denial of their continued existence.
Regarding the second limb, the court accepted that Company A had conducted its affairs in reliance on the Plaintiff's warranties, as the Plaintiff himself signed these agreements on the company's behalf. The court rejected the Plaintiff's argument that the Defendants needed to prove a specific subjective belief that the Plaintiff had waived his rights, holding that the test is objective and based on conduct.
The court analyzed the Plaintiff's reliance on Howden and Lousada and found that these authorities did not impose a requirement of subjective belief but rather supported an objective inference of reliance. The court emphasized that an objective approach is consistent with established law and that the Plaintiff's arguments to the contrary were misconceived.
The court further rejected the Plaintiff's contention that uncertainties about the disclosure of certain documents undermined the waiver argument, finding no basis to conclude the Plaintiff had not unequivocally abandoned his rights.
On the personal bar argument, the court treated it as an alternative characterization of the same facts underlying the waiver argument. It found that the Plaintiff's conduct justified Company A's belief that the Plaintiff would not rely on the disputed agreements and that allowing the Plaintiff to assert those rights now would cause prejudice. The court rejected the Plaintiff's narrow interpretation that personal bar requires belief that the agreements did not exist, observing that the distinction between waiver and personal bar is often elusive and overlapping.
Holding and Implications
The court's final decision was to sustain the Defendants' second plea in law, excluding the Plaintiff's averments regarding the disputed agreements from probation.
Consequently, the case was put out by order to consider further procedure, particularly to clarify which of the Plaintiff's averments are excluded from probation. No broader legal precedent was established, and the decision primarily affects the procedural posture and evidential scope of the Plaintiff's case going forward.