Cool Seas (Seafoods) Ltd v Interfish Ltd & Ors, Court of Appeal - Chancery Division, July 31, 2018, [2018] EWHC 2038 (Ch)

Resolution Date:July 31, 2018
Issuing Organization:Chancery Division
Actores:Cool Seas (Seafoods) Ltd v Interfish Ltd & Ors
 
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Neutral Citation Number: [2018] EWHC 2038 (Ch)

Case No: CR 2016 005825

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

IN THE MATTER OF NORTHBAY PELAGIC LIMITED

(COMPANY NUMBER 08811240)

AND IN THE MATTER OF THE COMPANIES ACT 2006

Rolls Building

Fetter Lane, London, EC4A 1NL

Date: 31/07/2018

Before :

MRS JUSTICE ROSE DBE

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Between :

Third Party

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Imran Benson (instructed by Rosling King LLP) for the Claimant and Third Party

James Potts QC and Chantelle Staynings (instructed by TLT LLP) for the Defendants

Hearing dates: 4, 8 - 11, 14 - 18, 21, 22, 23 May, 5 - 7 June 2018

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Mrs Justice Rose :

  1. INTRODUCTION

    1. Northbay Pelagic Ltd (``Northbay'') is a pelagic fish producer located at a large factory site in Peterhead on the coast of Aberdeenshire, Scotland. Pelagic fish are fish which swim in the water column of the ocean (as opposed to living on the seafloor). Northbay's core business is purchasing pelagic fish sourced in the North East Atlantic from fishing vessels. When a vessel lands at Northbay's quayside, the vessel's haul of fish is pumped directly from the vessel's holds into the fish processing factory. The fish are then processed through an automated factory by being gutted or filleted before being packed and frozen in blast freezers and stored in a cold store. The fish are then sold and distributed to customers. The business used to be run on the same site by a company called Fresh Catch Limited and was acquired by Northbay in January 2014. During the years when the business was operated by Fresh Catch there were about 30 to 40 landings of fish per year at the Peterhead site.

    2. The petitioner (`Cool Seas') owns 40% of the voting rights in Northbay and the First Respondent and Second Respondent own the other 60% of the voting rights. I shall refer to the First and Second Respondents jointly as `Interfish' unless it is important to distinguish between them. The controlling shareholder of Cool Seas is Christopher Anderson, the third party in these proceedings. He and his family used to own the Fresh Catch business. The most senior person involved on behalf of Interfish in the events giving rise to these proceedings is Johannus Colam. Mr Colam was the founder and managing director of the Interfish group of companies which is based in Plymouth. Interfish was entitled under the Investment and Shareholder Agreement setting up Northbay to appoint three directors to the board of Northbay. Mr Colam was one of those directors. Cool Seas was entitled to appoint two directors to the board of Northbay and Mr Anderson and his son Colin Anderson were those directors. They were also both senior employees of Northbay.

    3. By the end of 2015 relations between the Andersons and Interfish had broken down. In January 2016 Mr Anderson was dismissed by Northbay for gross misconduct and ceased to be a director of Northbay. Later in March 2016 Colin Anderson was similarly dismissed for gross misconduct and also ceased to be a director. Both sides in these proceedings are agreed that relations between them have deteriorated to such a degree that they cannot remain in business together any longer.

    4. Cool Seas have issued a petition under section 994 of the Companies Act 2006, alleging that the affairs of Northbay have been conducted in a manner which is unfairly prejudicial to them. Their primary complaint is that Mr Anderson and Colin Anderson's exclusion from the management of Northbay in 2016 was unjustified and was contrary to their legitimate expectation of remaining involved in the management of Northbay which they characterise as a quasi-partnership. The primary relief sought is that Interfish be required to buy out Cool Seas' interest in Northbay.

    5. Interfish contests that petition, arguing that the removal of Mr Anderson and Colin Anderson from their roles as directors and employees of Northbay was carried out in accordance with the terms of the constitution of the company and the arrangements between the shareholders. They assert that Northbay is not a quasi-partnership and that there was no legitimate expectation on the part of Cool Seas that Mr Anderson and Colin Anderson continue their involvement in the management of Northbay. They argue in the alternative that there was gross misconduct on the part of both men which justified their dismissal.

    6. Further Interfish itself petitions by way of counterclaim under section 994 alleging that Mr Anderson's conduct, and hence Cool Seas' conduct, in the management of Northbay's affairs was unfairly prejudicial to Interfish's interests as a member of the company. The primary relief they seek is that Interfish buy out Cool Seas' interest in Northbay. Interfish also alleges that Mr Anderson's conduct in many respects amounted to a breach of his fiduciary duties owed to Northbay. They submit that either the price to be paid to Cool Seas for its interest in Northbay should be adjusted to reflect the effect of those breaches on the company's business or that Mr Anderson be required to account for those breaches and make appropriate payments over to Northbay before the shares are valued.

    7. Both sides are agreed that the form of relief should not be determined by the trial before me. My task is to make findings on the issues of liability so that the parties can then work out how Cool Seas' shares in Northbay will be valued and then bought by Interfish.

  2. THE FISHING INDUSTRY

    1. Pelagic fish include mackerel, herring, capelin and sprats. During the course of a year the fishing seasons are as follows; January to March is the mackerel season, capelin and blue whiting are landed in about February to March. April and May are quiet and the herring season then runs from June to September. From September to the end of the year would be the start of the mackerel season. The seasons can vary by two to three weeks in either direction. However, in total there is an off-season of about six months each year when the fish processing plant is quiet.

    2. Both EU and non-EU ships fish for pelagic fish in the waters north of Scotland. They can land their hauls for processing either at plants in Scotland or outside the EU in Norway. The vessels can catch hundreds of tonnes of fish in their nets and store them in large refrigerated seawater tanks on board. The fish processing plants have to compete with each other to attract the business of the trawlers and also to sell on the processed fish to downstream customers. Larger fish are generally more valuable per gramme than smaller fish. Payment by the processing plant to the vessel for the fish landed is therefore calculated on the basis of the overall tonnage of fish, the average grammage of each fish, and the price per gramme.

    3. There are two aspects of the fishing industry which are particularly important to this case. Since 1970, fish quotas have been in place by the EU to ease the pressure on fish stocks and prevent unsustainable exploitation. UK boats are allocated a fishing quota limiting the number of fish of different species that they are entitled to catch in UK waters and land in a given season. The Scottish Government, via Marine Scotland, issues most of its quota allocations to Fish Producer Organisations which are made up of member fishing vessels and are responsible for quota management and marketing. The FPOs manage and control their members' quota on their behalf. Each UK vessel is allocated a portion of the UK's quota annually.

    4. The factual witnesses described the regulatory and tax regime applicable broadly as follows. Some of the fish caught and landed by vessels unloading at Northbay are caught in waters outside the EU. Those fish do not count against the UK quota of the vessel. But when they are landed, the processing plant must declare the fish and account to HMRC for the relevant import duty and import VAT payable. The duty is calculated by reference to the value of the goods at import or the value of the goods after processing. If the fish that have been landed from non-EU waters are processed by the factory and then sold outside the EU the import duty paid on the landing can be reclaimed. It is possible for a processing plant to arrange with HMRC to avoid the inconvenience of having to pay and then reclaim the duty by being granted Inward Processing Relief (`IPR'). When IPR is granted, HMRC accepts that duty does not have to be paid on imported fish provided they are processed by the plant and resold outside the EU within the period specified in the IPR. Imported fish must be held in a bonded warehouse at the plant. When goods leave the warehouse, duty is payable unless the business is entitled to IPR and the goods are exported outside the EU.

    5. The fish are weighed at various stages. When the vessel catches a haul, the fish are deposited from the nets into a tank in the vessel. The skipper can estimate the amount of fish in the tank by ``dipping''. This involves lowering a stick into the tank, measuring the ullage of the tank and then converting that into an approximate tonnage of fish in the tank. This is an imperfect method of weighing the fish partly because the vessel may be travelling in rough waters and also because the fish may be sitting in a mound shape in the tank. But the skipper will know roughly how much fish he has on board; he knows the species of fish and he can sample the catch to give him an idea of the average grammage and quality. The skipper can then declare these values either to an online auction site offering his catch for sale to nearby plants or he can choose which plant to land at and negotiate the price for the fish on the basis of his estimate.

    6. All vessels are required to give four hours' notice prior to arrival in port to land their catch. Once the vessel has landed at the processing plant the fish, mixed with water to enable them to flow freely, are...

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